China Press Digest: Thursday, Oct. 12

     BEIJING (MNI) - The following are highlights from the China press for

Thursday, Oct. 12:

     The China's overall financial leverage ratio remained relatively stable in

the second quarter, with non-financial institutions' ratio falling, that of

local governments basically unchanged, and that of the household sector rising,

the China Securities Journal reported Thursday. The overall leverage ratio edged

up 0.7 percentage point in the second quarter to 238.2% from 237.5% at the end

of June, the report said. Continued strong demand for housing credit was the

main contributor to the rising ratio in the household sector, with short-term

consumption loans flooding into the property market after banks restricted

mortgage lending, the report noted. The leverage ratio of local governments will

increase in the second half of the year as the gap between fiscal revenue and

spending widens, the newspaper said. The issuance of local government bonds will

rise since borrowing via illegal fund-raising vehicles is now being strictly

regulated, the report said. Still, it remains a concern that some local

governments may continue to provide guarantees to public-private partnership

projects, the report warned. (China Securities Journal)

     A group of city-based investment companies have announced that they will no

longer act as local government financing vehicles (LGFV) so that they have more

flexibility to raise and invest funds, the 21st Century Business Herald reported

Thursday. According to government regulations, investment companies are not

allowed to raise funds in overseas markets unless they have promised not to act

as LGFVs. In addition, companies cannot invest in cooperative projects between

local governments and private investors if they issue local government bonds.

But analysts think the withdrawal of some finance companies will not have a

large impact on the outstanding volume of local government debt issued by LGFVs,

as the bonds are backed by the local governments. And the withdrawals do not

mean these companies will sever all their connections with local governments

since the governments are often share-holders and can subsidize the finance

companies via other business dealings, the report noted. (21st Century Business

Herald)

     Regulator should take into consideration the "limited rationality" of

property market investors to prevent them from circumventing new regulations,

the Economic Information Daily, an economic journal run by the Xinhua News

Agency, said in a commentary Thursday. The rampant housing speculation evident

in recent years clearly indicates the irrationality among property market

investors, and regulators need to take this into consideration when drafting

policies to improve the market's efficiency, the commentary argued. The rise in

house prices in large cities has been reduced to the growth rate of the real

economy and so it is the typical "herd effect" of investors seeking other

opportunities that regulators must step in to curb. (Economic Information Daily)

     The sale of heavy trucks surged in September as economy continued to

expand, the 21st Century Business Herald reported Thursday. Heavy truck sales

volume broke 100,000 units in September, rising 89% year-on-year and 7%

month-on-month. Full-year sales are expected to excess 1.1 million units, a new

record, the report said. As a leading indicator of economic performance, the

sale of heavy trucks is highly correlated to commodities transportation and

fixed-asset investment, so the big rise reflects a robust economy. But there is

no sign such growth will continue next year, since the government campaign to

reduce overcapacity is still pushing forward, the report warned. (21st Century

Business Herald)

--MNI Beijing Bureau; +86 (10) 8532 5998; email: marissa.wang@marketnews.com

--MNI BEIJING Bureau; +1 202-371-2121; email: john.carter@mni-news.com

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