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The central government in China is ramping up pressure on local governments to repay massive stimulus loans that they took on to stave off the financial crisis. What's unclear is just how the $1.7 trillion dollars in debt will be repaid.
One Tuesday, the Chinese regime urged local governments to take measures to repay their debts—about $1.7-trillion in bank loans borrowed from Beijing during the 2008--2009 financial crisis.
The regime's Finance Minister spoke at a news conference at the National People's Congress in Beijing.
[Xie Xuren, Chinese Finance Minister]:
"We ordered local governments to do a good job in repaying their debts. In terms of the governments' debts, local governments need to set up debt repayment funds to use all their fiscal resources available to repay their debts."
He did not give specific details on what he meant by doing a "good job."
He also spoke about the possibility of including local debts in the national budget, although the economic impact of doing so was not addressed.
During the financial downtown in 2008, the Chinese regime encouraged heavy borrowing from local governments to stimulate infrastructure projects and boost economic growth.
Although the debt problems have grown increasingly worse in the past year, Beijing has offered little information on how to solve the problem.
Many fear local debt could cause financial instability in China. Analysts are saying that if debt-ridden local governments default, China's bank will be left with a stock of sour loans. There's been a lack of transparency with the figures.
Analyst estimate that roughly one-fifth of loans, worth three to four hundred billion dollars, may have gone bad. Some speculate ongoing local debt problems may lead to problems as big as the US sub-prime mortgage crisis, in China.