China's Wen: government debt risk "controllable"

Sun Jan 29, 2012 9:45pm EST
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By Aileen Wang and Chris Buckley

BEIJING (Reuters) - China's Premier Wen Jiabao said the nation's government debt is at an "overall safe and controllable" level, that funding for key projects would be ensured and that applying the brakes to the problem would be done in a way to avoid systemic risks.

Investors have been worried by the scale of the debts built up by China's local governments, which some fear could threaten the stability of the banking system.

Wen's comments, reported in the official People's Daily on Monday, were made in a speech dating back to early January at the government's flagship financial work conference.

Wen pledged to contain and defuse local government debt risks and avoid the spread of financial risks.

"Currently, our government debt is overall safe and controllable," he said.

"We are taking the issue of managing local government debt very seriously. Through clean-ups and regulation, the trend of expanding investment vehicles has been effectively contained."

China's state audit office said earlier this month it had uncovered 530 billion yuan ($84 billion) worth of irregularities involving local government debt.

But the figure is a fraction of the 2 trillion-3 trillion yuan of sour loans economists believe are buried in the 10.7 trillion yuan of debt local governments had at the end of 2010.   Continued...

<p>Chinese Premier Wen Jiabao attends the ASEAN-China Commemorative Summit on the sidelines of the ASEAN and Related Summits in Nusa Dua on the Indonesian island of Bali November 18, 2011. REUTERS/Sonny Tumbelaka/Pool</p>