SHANGHAI: New rules from China's banking regulator aimed at restricting local government borrowing are weaker than a draft version circulated last month, according to a copy of the rules provided to Reuters by two industry sources.
The adjustment in the final set of restrictions reflects the challenge policymakers face in striking a balance between supporting economic growth and the need to prevent excessive debt buildup through special-purpose vehicles known as local-government financing vehicles (LGFV).
Compared to the draft version released in March, the final rules relax the hard cap on the total amount of LGFV loans banks are allowed to hold.
The draft version required banks to keep their overall exposure to LGFVs at the same level as end-2011.
The final version simply says that banks "must not increase the volume of LGFV loans" without specifying the baseline against which increases will be calculated.
A provision mandating that banks hold the share of their overall loan portfolio devoted to LGFV loans at or below the end-2012 level has also been removed from the final version.
The China Banking Regulatory Commission ( CBRC) released a final version of the rules on Monday, the sources said.
Chinese officials and external analysts began warning about the risks of local government debt as early as 2010, but infrastructure spending financed by local borrowing remains an important pillar of China's macro-economy.
The draft version capped at 15 percent the portion of a bank's total LGFV loans that may be invested in LGFVs whose asset-liability ratio exceeds 80 percent.
The current version softens that provision to state simply that the ratio of LGFV loans given to such LGFVs should not increase compared to last year, regardless of what the ratio is in percentage terms.
Finally, the final rules emphasize that banks and regulators should implement a "differentiated credit policy" by continuing to support projects that further national policy priorities.
The priorities singled out for credit support are affordable housing, highways, and water treatment. The rules come as data released on Monday showed that GDP growth, industrial production, and fixed asset investment all fell short of expectations.
indiatimes.com
The adjustment in the final set of restrictions reflects the challenge policymakers face in striking a balance between supporting economic growth and the need to prevent excessive debt buildup through special-purpose vehicles known as local-government financing vehicles (LGFV).
Compared to the draft version released in March, the final rules relax the hard cap on the total amount of LGFV loans banks are allowed to hold.
The draft version required banks to keep their overall exposure to LGFVs at the same level as end-2011.
The final version simply says that banks "must not increase the volume of LGFV loans" without specifying the baseline against which increases will be calculated.
A provision mandating that banks hold the share of their overall loan portfolio devoted to LGFV loans at or below the end-2012 level has also been removed from the final version.
The China Banking Regulatory Commission ( CBRC) released a final version of the rules on Monday, the sources said.
Chinese officials and external analysts began warning about the risks of local government debt as early as 2010, but infrastructure spending financed by local borrowing remains an important pillar of China's macro-economy.
The draft version capped at 15 percent the portion of a bank's total LGFV loans that may be invested in LGFVs whose asset-liability ratio exceeds 80 percent.
The current version softens that provision to state simply that the ratio of LGFV loans given to such LGFVs should not increase compared to last year, regardless of what the ratio is in percentage terms.
Finally, the final rules emphasize that banks and regulators should implement a "differentiated credit policy" by continuing to support projects that further national policy priorities.
The priorities singled out for credit support are affordable housing, highways, and water treatment. The rules come as data released on Monday showed that GDP growth, industrial production, and fixed asset investment all fell short of expectations.
indiatimes.com
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