Chinese local governments’ $1.6 trillion in bank borrowings are a major obstacle to the freeing up of interest rates in the world’s second-largest economy, according to BNP Paribas SA and Capital Economics Ltd.
China’s audit of local government debt may find that provincial and municipal authorities owe more than 20 trillion yuan ($3.3 trillion), said Liu Yuhui, a researcher at the Chinese Academy of Social Sciences.
China’s yuan had its first weekly gain this month after the central bank strengthened the currency’s daily fixing and on speculation that Premier Wen Jiabao will implement measures to revive economic growth.
China’s biggest banks may fall short of loan targets for the first time in at least seven years as an economic slowdown crimps demand for credit, three bank officials with knowledge of the matter said.
Chinese stocks rose after a unit of nation’s sovereign wealth fund boosted its stakes in the biggest lenders, overshadowing concern regulators will resume approving initial public offerings next month.
China needs to increase interest rates to check its investment spree and cool demand for speculative assets, Liu Yuhui, an economist with the Institute of Finance and Banking at the Chinese Academy of Social Sciences, wrote in a China Daily commentary today.