Local Debt Surge Worries China Regulators

Mayank Mehta, Chandrasekhar Atreya and Sanjay Barot
28 Jun, 2010
New York City

Stocks in Shanghai declined for the fourth day in a row but in Hong Kong gained. Regulators said that local government controlled entities borrowing surged 70% that may be unsustainable. Air China signs deal with Boeing to buy 20 new planes.

[R]5:00 PM Hong Kong, China – Stocks in Shanghai declined for the fourth day in a row but in Hong Kong gained. Regulators said that local government controlled entities borrowing surged 70% that may be unsustainable. Air China signs deal with Boeing to buy 20 new planes. Taiwan and China are expected to sign a trade treaty tomorrow.[/R]

Stocks in China fell for a fourth day led by shippers after freight rates tumbled. The CSI 300 Index fell 0.71% or 19.51 to close at 2,716.78.

Stocks in Hong Kong gained for the first time in three days led by developers and oil producers after crude prices advanced. The Hang Seng Index rose by 0.17% or 35.89 to close at 20,726.68.

China’s coal producers were asked to hold prices agreed in annual supply contracts as the government seeks ways to control inflation, said China’s economic planner, National Development and Reform Commission on June 25.

President Hu Jintao asked the G-20 leaders to coordinate policies to prevent stalling of global economic recovery. At a gathering of world leaders in Toronto, Canada the leaders discussed global economic conditions and discussed the future joint course of actions.

The China Banking Regulatory Commission estimates that outstanding loans to financing entities set up local governments rose 70% to 7.38 trillion yuan at the end of 2009 year-on-year. In the first quarter of this year, about 40% of the loans were taken by such entities, according to the regulator. These vehicles are used for borrowing as local governments cannot borrow directly.

There is a very distinct possibility that surging debt by local governments may curb growth and also limit stimulus.

Foxconn Technology Group, the contract maker of Apple Inc’s iPhones and Hewlett Packard’s computers is planning to establish a factory in Henan province of central China, the local government said on its Web site.

The company is looking to hire 100,000 workers from the province out of the proposed 300,000 workers, and send them for training to Foxconn’s facilities in Shenzhen, the government said in a statement.

Taiwan is scheduled to sign its first trade treaty with China tomorrow in the city of Chongqing, former headquarters of Taiwan’s ruling Kuomintang, as the relations between the two warm since the new government took office in Taiwan in May 2008.

China has set aside its claim that Taiwan is a renegade province, in order to negotiate the Economic Cooperation Framework Agreement, hoping that tighter economic integration will achieve what six decades of military threats did not.

Shanghai Movers

Air China Limited decreased 4.4% to 11.11 yuan after the international carrier said it has agreed to buy 20 new Boeing 737-800 planes to expand its fleet to meet growing demand.

China Shipping Container Lines Company Limited fell 1.6% to 3.64 yuan after the cargo-box carrier, intends to impose additional surcharges on transpacific shipping next month due to a global shortage of containers.

China Shenhua Energy Company Limited fell 1.4% to 23.15 yuan after coal sales rose 21.5% year-on-year to 275 million tons in May, reports Xinhua News Agency, citing data from the China National Coal Association.

China Construction Bank Corporation fell 0.2% to 4.91 yuan and DaTong Coal Industry Co., Ltd decreased 6.0% to 30.87 yuan.

HK Movers

Bank of Communications Co., Ltd fell 0.8% to HK$8.68.

China Metal Recycling (Holdings) Limited, the scrap metal recycler, rose 1.4% to HK$7.21.