Econintersect: It will be on a selected case-by-case basis, but some local government loans will be rolled over by banks when they mature over the next three years. The national 
government has issued these instructions as local government debt as ballooned to $1.7 trillion as a result of an infrastructure building frenzy undertaken partly as stimulus to prevent China from succumbing to the 2007-09 recession. There has been concerned expressed by some economists that the infrastructure boom in China is not sustainable. See for example Michael Pettis, GEI Analysis.
The kinds of loans to be rolled over will include highway construction, industrial upgrades and cleaner growth. An example given by Reuters for a project not to be given favorable loan extension was “massive city squares.” So it sounds like public facilities would be among those cut back.
It is reported by Simon Rabinovitch in the Financial Times that there is also talk that some local government debts may be nationalized. Standard & Poor’s has warned that forbearance on debt could undermine investor confidence in China.
Sources:
- China tells banks to roll over loans (Simon Rabinovitch, Financial Times, 12 February 2012)
- China Tells Banks to Roll Over Local Government Loans (International Business Times (Reuters), 12 February 2012)
- Real Estate: Not the Big Overinvestment Problem in China (Michael Pettis, GEI Analysis, 25 January 2012)
Newspaper articles found on Econintersect Asia newspaper page
