MNI: Pudong Bank, LGFV Clampdown: China Press Digest, Jan 22

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

Monday, January 22:  

     The Chengdu Branch of Shanghai Pudong Development Bank was fined CNY462

last week by China's banking regulator for illegally loaning as much as CNY77.5

billion to shell companies as cover-ups for its non-performing loans, Shanghai

Securities News reported over the weekend. Top management associated with the

scandal were fined and charged, as well as barred for life from working in

banking, while 195 lower-level executives were disciplined, it said. Pudong Bank

said in an exchange filing that the fine's impact is immaterial to the bank's

operations. 

***Comment: Chinese commercial banks, under regulatory pressure to reduce high

NPL ratios, lent recklessly to SOEs. These loans increased the risk of defaults

and made it harder for private companies to obtain capital.

     China is clamping down on the use of local government funding vehicles

(LGFVs), the 21st Century Business Herald reported Monday. The central

government is enforcing debt swaps or separating LGFVs to independent companies

to reveal invisible debt held by local authorities. The process of regulating

LGFVs is slow and difficult given that it ties to the local economies and that

it gets implicit guarantee from local governments, it said. 

***COMMENT: LGFVS were was created to help local governments meet targets. Local

officials are pressured by evaluations from central government. Irregularities

presented by LGFVs therefore cannot be eliminated without overhauling the fiscal

structure. These on-again and off-again approaches will not resolve the issue.

     The debt ratios of SOEs and local governments need to be closely watched,

Li Yang, a researcher with the Chinese Academy of Social Science and advisor to

China's leadership, said in a forum at the Renmin University on Sunday. With

China experiencing slower growth, excess production capacity and a difficult

investment environment, rising leverage ratios, debt and non-performing loans

are posing more risks, Li said. China's financial system is marked by that

borrowers need to continue refinancing loans - due to the lack of long-term

financing options - and not by capital shortage, Li said. China should boost the

use of equity in its capital market and establish long-term credit institutions,

Li said.

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

--MNI Beijing Bureau; +86-10-8532-5998; email: beijing@marketnews.com

--MNI Beijing Bureau; +86 10 8532 5998; email: william.bi@mni-news.com

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