<p>
Finally, Beijing has woken up to the rising debt problem of the Chinese local governments.</p>
<p>
The China Banking and Insurance Regulatory Commission (CBIRC) and Ministry of Finance have issued a notice asking local banking and insurance institutions not to increase their &ldquo;hidden debts&rdquo; in the local governments. &ldquo;This means that local government investment companies will be required to reduce existing debts, making them unable to easily find liquidity,&rdquo; <a href="https://thediplomat.com/2021/07/chinas-circular-15-addresses-local-governments-hidden-debts/">the Diplomat</a> reported.</p>
<p>
The news organisation reported that the move has jolted the local government investment companies as banks play a key role in providing loans as a main source of indirect financing. &ldquo;In particular, the policy is expected to negatively impact those local government investment companies with hidden debts, forcing such firms to resolve their debts,&rdquo; it said.</p>
<p>
<strong>Also read: <a href="https://www.indianarrative.com/opinion-news/with-china-losing-steam-india-needs-to-revive-the-asia-africa-growth-corridor-in-outreach-to-africa-102755.html">With China losing steam, India needs to revive the Asia Africa Growth Corridor in outreach to Africa</a></strong></p>
<p>
Sources said that the move is because of the debt level has become an &ldquo;unreasonably high and therefor it is gradually becoming unmanageable, which is why the authorities have started moving towards addressing the situation.&rdquo;</p>
<p>
<a href="https://www.ft.com/content/93bd1857-e488-4bb9-a2a0-b2e8841bfe40">Financial Times</a> in January reported that regional governments across China are evading borrowing limits by transferring assets on to the books of local investment companies to lower their official debt-to-asset ratios, according to executives and officials.</p>
<p>
The news organisation noted that the practice has allowed local government finance vehicles (LGVFs) to raise more money for infrastructure and other construction projects. &ldquo;But analysts warn that many of the assets are of poor quality, setting the stage for a surge in bad debts after a wave of bond defaults at government-backed companies in recent weeks,&rdquo; it said, adding that Chinese banks, the biggest lenders to LGFVs, are comfortable lending to bigger government-owned investment companies even if their underlying asset quality is deteriorating.</p>
<p>
According to the Diplomat, as of May 2021, local government debt across the country stood at $4.16 trillion.</p>
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