Chinese economic woes

China's 20tr yuan debt limits growth

Investors concerned about bad loans

Gulf News,

5 December, 2011

Beijing: China's government debt, which may have risen to 20 trillion yuan (Dh11.5 trillion) by the end of 2010, or about 50 per cent of its gross domestic product, is becoming a major constraint on its economic growth, research firm Beijing Fost Economic Consulting Company Ltd said.

Local governments may have had 13 trillion yuan debt at the end of last year, the company said in a report emailed yesterday and dated Saturday. A report issued by the National Audit Office in July said local governments at provincial, city and county levels amassed 10.7 trillion yuan debt by the end of 2010. The central government had 6.75 trillion yuan debt at the end of last year, said research company said.

Local authorities in China, previously barred from directly selling bonds or taking bank loans, set up at least 6,576 financing vehicles to raise money for constructions of roads, sewage plants and subways, the audit office's report said. Investors are concerned that the debt may saddle banks with bad loans if growth in the world's second-biggest economy slows.

"The risks posed by the financing vehicles are now gradually emerging and local government debt problems have already become prominent and that must be firmly controlled as soon as possible," the research firm said in the report. China's economy expanded 9.1 per cent in the third quarter from a year earlier, slowing from 9.5 per cent in the previous three months amid government campaign to cool consumer and housing prices as Europe's debt crisis crimps its exports.

Borrowing by local auth-orities is likely to come under increasingly stricter scrutiny and banks will become more prudent when making loans to those financial vehicles, the firm said.

The researcher said its estimates of local government debt include borrowings by townships that weren't calculated by the state audit office, so the accuracy of its own estimate may be "very poor".

"A slowdown in China's economic growth is inevitable once the local governments are no longer able to continue borrowing to spur economy," the firm's report said.

China faces coal shortages in 2012 amid strong demand: Shenhua official

Platts,

2 December, 2011

Huaihua, China 

China will continue to face coal shortages in 2012, amid strong local demand and limited coal transportation capacity, said Huang Qing, board secretary of China Shenhua Energy Co Thursday.

Huang was addressing the 2012 China Galaxy Securities Investment Strategy Seminar held in Sanya City of Hainan Province on Thursday.

Coal demand looks set to grow steadily in line with China's urbanization, industrial growth and its reliance on thermal power. 

China's urbanization rate grew from 19.4% in 1980 to 46.6% in 2010 and is expected to grow to about 51% by 2015, Huang said.

While a report by UOB Kay Hian, released Thursday, noted that thermal power generation for the 10 months to October rose 15.2% year on year, exceeding the 11.4% year-on-year growth in the national power output for the period. 

The key reason for the spike in thermal power generation, according to the UOB Kay Hian report, was an 8.2% year-on-year decline in hydropower generation during the period. The continuous shortfall in hydropower generation has been made up for by the acceleration in thermal power generation which has underpinned demand for thermal coal.

China remains over-reliant on thermal power generation, which accounts for 82% of 2011's total power output, the report said. This makes the government target of reducing thermal power generation to 70% of total power output by 2015 unachievable.