(MarketWatch) — China’s banking system will require an eventual bailout by the central government, according to some analysts, who said figures released last week on the size of local-government borrowings point to the need for a rescue.
Credit Suisse economist Dong Tao said the numbers backed up concerns he’s been voicing for the past two years on China’s toxic loan problem.
“Ultimately, we believe that the central government will need to separate the local government’s bank debt from banks’ balance sheets and recapitalize the banks,” Tao said in a note following the release of data on China’s local-debt obligations by the National Audit Office.
The National Audit Office said on June 27 that local-government debt totaled 10.7 trillion yuan ($1.65 trillion), or about 27% of China’s 2010 gross domestic product. The total represented the tally at the end of 2010 and marked the first time the NAO had released official data on these obligations.
Credit Suisse economist Dong Tao said the numbers backed up concerns he’s been voicing for the past two years on China’s toxic loan problem.
“Ultimately, we believe that the central government will need to separate the local government’s bank debt from banks’ balance sheets and recapitalize the banks,” Tao said in a note following the release of data on China’s local-debt obligations by the National Audit Office.
The National Audit Office said on June 27 that local-government debt totaled 10.7 trillion yuan ($1.65 trillion), or about 27% of China’s 2010 gross domestic product. The total represented the tally at the end of 2010 and marked the first time the NAO had released official data on these obligations.
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