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China Averts $482 Billion in Local Bank Defaults via Massive Rollover Scheme; Extend-and-Pretend Chinese Style


By Mike “Mish” Shedlock 

The Chinese banking system is insolvent. Of course, the entire global banking system is insolvent, but today’s spotlight is on China. Please consider China averts local government defaults.

 Chinese banks have rolled over at least three-quarters of all loans to local governments that were due to mature by the end of 2012, an indication of the immense challenge facing China in working down its debt load.

Local governments borrowed heavily from banks to fuel China’s stimulus programme during the global financial crisis and are now struggling to generate the revenue to pay them back, a shortfall that could cast a shadow over Chinese economic growth.

Banks extended at least Rmb 3tn ($482bn) – and perhaps more – of the roughly Rmb 4tn in loans plus interest that local governments were to have paid them by the end of last year, according to Financial Times calculations based on official data.

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