BEIJING, Jan 7 ? China?s Premier Wen Jiabao urged the country today to reduce risks stemming from local government debt and called for better regulation to manage the risks, although he described the debt situation as ?still under control?.
In a speech at the end of an important financial conference, Wen (picture) said China must ?regulate its local government debt financial mechanism ... and establish controls for the scale of local government debt and a risk warning mechanism?, according to comments published on a government website.
?Prevent and resolve local government debt risks,? Wen said. ?Currently, our country?s government debt is generally secure and under control.?
Wen stopped short of providing a detailed plan on how to manage debt risks at the two-day National Financial Work Conference, held every five years.
The conference, first held in 1997, comes at a time of growing worry about irregularities with local government debt which has left investors wondering how much work remains to be done to clean up after 2008?s stimulus-fuelled credit binge.
?China?s financial sector still has some outstanding issues and potential risk? in terms of the ?operation of its financial institutions, corporate governance and risk management?, Wen said.
China?s state audit office said on Wednesday it 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 of sour loans economists believe are buried in the 10.7 trillion yuan of debt local governments had by the end of 2010.
The scale of debt worries investors because it could rock the banking system.
SUPERVISION
Wen also said that China must ?strengthen and improve its financial supervision and effectively prevent systemic financial risks?.
?The banking industry should establish a comprehensive and prudent risk supervision system,? he said. ?The securities industry should improve market regulations, strengthen behaviour supervision and protect investors legitimate rights.?
The conference is widely seen setting the tone for financial reform and it formulates multi-year plans for the financial system.
Wen pledged to deepen the reform of financial institutions, by ?breaking monopolies, broadening access and encouraging ... private capital into the financial services sector?.
Wen said China would ?advance? the convertability of the yuan in an ?orderly? manner.
While the currency is already convertible under China?s current account, the broadest measure of trade in goods and services, the capital account, which measures inflows and outflows of different types of capital, is still closely managed by Beijing as it worries about capital flight and hot money inflows.
Previous such conferences have led to significant policy changes, such as the reform of the People?s Bank of China, the central bank, and the establishment of the CIRC, the CBRC and the China Investment Corporation, the country?s sovereign wealth fund. ? Reuters
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