China government debt ‘controllable,’ says Wen

BEIJING - Agence France-Presse

The Chinese government wants to make Shanghai a global center for yuan trading.

Chinese Premier Wen Jiabao said government debt was “overall safe and controllable” and key projects would continue to receive funding to avoid “systemic risks,” state media said yesterday.

A lending explosion has fuelled concerns that local governments, which borrowed heavily to build roads, bridges and luxury apartments, will default as the world’s second largest economy slows.

China’s audit office said earlier that it had uncovered 530.9 billion yuan ($84 billion) in misused funds involving local government debts.

That compares with an estimated 10.7 trillion yuan in local government debt at the end of 2010 -- about one quarter of China’s 2010 gross domestic product -- but analysts believe the real figure could be much higher.

“Currently our government debt is controllable,” Wen said earlier this month, according to the People’s Daily.

“We are taking the issue of managing local government debt very seriously. Through clean-ups and regulation, the trend of expanding investment vehicles has been effectively contained.”

Local governments, which are not allowed to borrow directly from banks, have set up thousands of investment vehicles to finance infrastructure and other projects.

There are concerns that Beijing’s efforts to contain inflation and property prices by restricting lending and hiking interest rates could trigger widespread defaults and destabilise the economic giant.

Shanghai to be Yuan center

BEIJING/SHANGHAI – Reuters

China will make Shanghai the global center of yuan trading, clearing and pricing by 2015, according to a specific state plan laying out the city’s future as an international financial centre.

The detailed plan, published jointly by the country’s economic planning agency and the Shanghai government, shows the scale of China’s ambition in creating its own version of New York, London or Hong Kong.

China is aiming to transform Shanghai into an international financial centre by 2020 and analysts said yesterday’s blueprint was likely a part of that longer-term scheme.

Currency traders said the statement by the National Development and Reform Commission (NDRC) was also a message from Beijing that the yuan’s movements, which have increasingly been influenced by the offshore market over the past few months, would be decided by the government.

“There have been recent developments that have put Hong Kong’s offshore market in the spotlight from time to time, such as its pricing of the yuan quite differently from the onshore market,” said a trader at a European bank in Shanghai.

“In this sense, the NDRC statement is published at a sensitive time and means the government once again wants to emphasize that it has the final say in the value of the yuan.”