20% of local govt financing vehicles vulnerable to risks

BEIJING -- About 20 percent of China's local government financing vehicles are not profitable and thus are vulnerable to risks, said central bank governor Zhou Xiaochuan on Wednesday.

"We should not underestimate risks in local government financing vehicles, nor should we overestimate them," Zhou said at a news conference on China's currency policy and financial reform, held on the sidelines of the first annual session of the 12th National People's Congress.

A large share of local government financing vehicles are funding large projects including urban infrastructures and urban public services, Zhou said, adding that these projects mostly are safe from insolvency if banks deal with them properly.

Another category of lending is based on mortgages and the risks are controllable as long as mortgaged goods do not change remarkably, he said.

But about 20 percent of local government financing vehicles are funding projects which are largely not profitable and thus the debts have to be paid with other incomes of local governments, according to Zhou.

He urged more attention be paid to the risks and called for further reforms to introduce new financing tools so as to ensure financial support for the country's urbanization.

Some local governments lacked proper financing channels when they launched projects amid urbanization, noted the central bank governor.