Deadline Extended for Investigations into Local Financing Platforms

News, Cover, Issue 492, November 1
Translated by Tang Xiangyang
Original article: [Chinese]

The central government has extended the original October 31 deadline for local governments to report the results of their investigations into local financing platforms.

On October 24, the finance bureau of Huainan City of Jiangsu Province held a meeting to review local financing platforms; on October 28, the city government of Alashan City in Inner Mongolia stated on its website that it will begin to investigate its local financing platforms.

City-level governments will report the result of their investigations to their provincial finance bureau. The EO has learned that many provinces and cities began investigating their local financing platforms as late as the end of October. For example, Shandong Province released a notice on October 9 requiring its city-level subsidiaries to investigate local financing platforms and report the results to the provincial finance bureau by October 15. The latter will then report them to the Ministry of Finance.

Sichuan Province, where the number of local financing platforms is comparatively bigger in scale, released a notice on October 11 requiring city-level governments to report the results of their investigations by October 20.

Given the large amount of information that needed to be collected and analyzed, local governments struggled to finish the task within a month. On August 19, four ministries, including the Ministry of Finance, co-released detailed rules to guide local governments in their investigations before the October 31 deadline.

On October 10, the China Banking Regulatory Commission reported that the loans of local financing platforms totaled 7.66 trillion yuan, of which nearly two trillion yuan were "problematic loans".

But local governments have encountered unforeseen difficulties that have slowed down the entire investigative process.

Alashan City has only one city-level financing company. An official with the local finance bureau told a reporter with the EO that at best, Alashan would finish the task by the middle of November. He said that financing companies should report the banking loans they owed to the local finance bureau and then the latter would review each of the loans by referring to statistics provided by the local banking regulatory commission, commercial banks and the financing company.

During the review, the bureau found that the data provided by the financing company differed from the data given by the local banking regulatory body; the finance bureau then asked the financing company to double-check the data and re-report it. “This has been repeated again and again. We have to report to the Ministry of Finance while constantly revising the data. We have no idea how long this process will last,” said an official from the Alashan City local finance bureau.

The loan data of local financing platforms reviewed by the financial departments is different from the data gathered by the banking regulatory departments. Local finance bureaus are responsible for reviewing the debts of local financing platforms and reporting them to the Ministry of Finance; branches of the central bank will provide the Ministry of Finance with information on             government debts such as intermediate-term bills; subsidiaries of the China Banking Regulatory Commission will tell the Ministry of Finance details of the loans local governments owe to the banks.

It is easy for banking regulatory departments to review loan details. But financial departments can only rely on the statistics reported by local financing platforms. They have to categorize the loans and see which part of them might become government debts.

An official from the Ningxia Finance Bureau stated that local financing companies were not under the leadership of the finance bureau; so it is not easy for the latter to review their loans. Some local governments are even looking to establish specialized offices to manage the government debts; such offices will be managed by a city-level official.

“The theory is different from the practice,” an official with the Alashan Finance Bureau said, many people thought that, given the small number of the local financing platforms, it would only take a few days for local finance bureaus to gather their data and report it to the Ministry of Finance. But in fact, it is a tough task.

A Liaoning Province, Liaoyang City official said: ”The central government requires this round of investigations to be real, complete and accurate. But it did not assign us the task until a few days before the National Holiday. It is impossible for us to do a satisfactory job in such a short time.”

Jiangsu Province is also investigating their local financing platforms, and it has required their city-level subsidiaries to report the results of the investigation by November 15.

Though the State Council released a notice requiring the investigation of local financing platforms on August 19, local governments did not release the related policy until the middle of October.

According to the State Council’s notice, local governments have to report the results of the investigation to the Ministry of Finance by October 31. Then it will regulate and manage financing platforms in November according to specific categories. In December, the central government will further improve the mechanism and regulations imposed on local financing platforms. The new deadline is December 31.

Given that the task of the first phase has been delayed, it is unknown whether the following tasks will be finished on time. An official with the Ministry of Finance Budget Department said, though it is not clear how the investigation is currently proceeding, local governments should finish the task before the deadline.

This article was edited by Ruoji Tang and Rose Scobie