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China finds $84bn local government debt irregularities

National Audit Office said breaches included “irregular credit guarantees”, “irregular collateral” and “fraudulent and underpayment of registered capital”.

There are growing concerns about the amount of bad loans being held by local governments.Official figures show they held debt of 10.7tn yuan ($1.7tn; £1.1tn) in 2010.

“The State Council is studying proposals to enhance local government debt management and to address fiscal and financial risks,” the audit office said in the report.
‘Again and again’
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A lot of the local debt will be absorbed by the central government”
Michael Pettis Peking University

Local governments have been borrowing money from Chinese banks to fund projects aimed at maintaining economic growth.

According to the China Banking Regulatory Commission, local governments took up 80% of total bank lending in China at the end of 2010.

However, analysts said that although the lending had helped to spur investment and boost growth, it was now weighing on local governments.

“Whenever you look at lending that spurs growth miracles, it starts off with an increasing ability to pay the debt,” Professor Michael Pettis of Peking University told the BBC.

“But in every case that ability fades. That is the process that is happening in China,” he explained. “We are going to see stories like this again and again.”
Easing burden?

In October last year, China allowed four local governments to sell bonds for the first time in 17 year. It was hoped the sale would help them pay their loans.

However, the central government put a limit on the amount of bonds the local governments could issue despite the fact that there was a lot of interest among investors.

According to the Xinhua news agency, Shanghai’s bond sale received bids for three times the amount of bonds on offer.

As a result, many of the local governments still have sizeable debts and while the central government may let them raise money, it may also have to take further measures to solve the problem, analysts said.

“A lot of the local debt will be absorbed by the central government,” said Mr Pettis of Peking University.

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William Hague to urge reform on visit to Burma

William Hague is visiting Burma, the first British foreign secretary to do so for more than 50 years.

He is expected to use meetings with the country’s leaders to press for the release of more political prisoners.
His visit is the latest in a series by top diplomats from around the world, amid steps towards reform by the new government in Burma.
Burma held its first elections in 20 years in 2010, replacing military rule with a nominally civilian government.
Since then the new administration has freed pro-democracy leader Aung San Suu Kyi and begun a process of dialogue.
Last month she formally registered her National League for Democracy as a political party, after boycotting the 2010 polls because of electoral laws that prevented her taking part.

In December US Secretary of State Hillary Clinton visited Burma, in what was seen as an endorsement of the reform process – although Western observers say much more is needed.
‘Political freedom’

Speaking ahead of his arrival in the capital, Nay Pyi Taw, William Hague welcomed the “encouraging” steps taken by the government.

“I am visiting the country to encourage the Burmese government to continue on its path of reform, and to gauge what more Britain can do to support this process,” he said.

Mr Hague is the first British foreign secretary to visit Burma since 1955.

In Nay Pyi Taw he will hold talks with President Thein Sein, a former top general who stepped down to contest the polls as a civilian.

He will then travel to Rangoon, Burma’s commercial capital, to meet Aung San Suu Kyi, representatives of some of Burma’s ethnic minority groups and dissidents.

Ms Suu Kyi’s party plans to contest by-elections in April that could see her elected to parliament. Her party secured a landslide victory in polls in 1990 but was never allowed to take power.

The new government has released some political prisoners in recent months but between 600 and 1,000 journalists, dissidents and monks who led anti-government protests in 2007 are thought to remain behind bars.

Mr Hague said he wanted to see more progress on reform.

“Further steps are needed that will have a lasting impact on human rights and political freedom in Burma,” he said.

“In particular, we hope to see the release of all remaining political prisoners, free and fair by-elections, humanitarian access to people in conflict areas, and credible steps towards national reconciliation.”

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