China is likely to allow local governments in the country to gain formal access to the bond market, in a bid to help them raise funds for infrastructure projects, an economist said.
“We expect the ongoing National People’s Congress plenum to approve [the proposal] for local governments,” Lu Ting, head pf Greater China Economics at Bank of America Merrill Lynch, told a press briefing in Hong Kong Monday.
He said he does not expect local government debts to go into default as such debts mainly comprise bank borrowings. Meanwhile, there is big room for the central government to help, Lu said.
Government debts were equivalent to about 53 percent of the country’s gross domestic product, with about 21 percent of the debt accounted for by the central government and about 32 percent by local governments.
About 30 to 40 percent of the local government debt needs to be rolled over, Lu said.
“Defaults from bonds and trusts in China will likely increase this year and have an impact on the financial system, but it will not be a Lehman Brothers-like crisis,” the economist said.
“The worst case is that all investors take their money out from the products,” Lu said, but added that such thing is not likely to happen.
China’s total corporate debt hit a record US$12 trillion at the end of last year, translating to about 120 percent of its gross domestic product for 2013, Reuters reported on Feb. 26, citing Standard and Poor’s estimates.
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