Local Govts See Trouble Cancelling LGFV Debt Guarantees: Press

     BEIJING (MNI) - Local governments in China have been experiencing

difficulties in cancelling their guarantees on local government funding vehicle

(LGFVs) debts, PPP projects and government investment fund projects, the 21st

Century Business Herald reported on Wednesday.

     In the past, LGFVs have often borrowed money from financial institutions,

with local governments guaranteeing to the financial institutions that the money

will be paid back using government funds, putting the financial risk on the

governments rather than the financial institutions, which is illegal according

to China's Budget Law.

     In early May, the Ministry of Finance and Peoples Bank of China, along with

other regulators, demanded that local governments withdraw their guarantees on

all debts not issued by the local governments themselves before July 31st, the

21st Century Business Herald report said.

     Some local branches of financial institutions, especially state-owned

banks, are awaiting opinions from their headquarters on whether they should

return the guarantees, delaying matters further, the report said. 

     Other financial institutions have asked local government and LGFVs to use

other guarantee measures to replace the existing guarantee letters, while some

have demanded that local governments "pay back our money in advance if you want

to take back your guarantee letter," the report said.

     Local governments have also taken significant risks in some public-private

partnership (PPP) projects and government investment funds by guaranteeing

returns to financial institutions and other lenders -- which is also illegal. 

     However, the central government remains optimistic that local governments

can work out matters related to the guarantees.

     "Now local governments are working hard to cancel illegal guarantees and

negotiate with [lenders] to change inappropriate acts," Wang Kebing, deputy

director of the budget department at the Ministry of Finance, said during a

press conference last week. "Local governments need to report to us the progress

on time."

     "I expect to see considerable improvements on this matter," Wang said.

--MNI Beijing Bureau; +86 10 85325998; email: he.wei@marketnews.com

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

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