New credit step from China

The Chinese government has increased credit support for local governments that are likely to experience a credit crisis. According to sources familiar with the matter, the largest Chinese banks have increased the maturity of loans given to local government finance institutions to 25 years and have provided temporary interest payment support for these loans. In recent months, Chinese banks have been providing loans to high-rated companies and local government institutions with a maximum maturity of 10 years. Sources stated that some loans were provided without principal or interest payments for 4 years. Although there have been no defaults like the ones experienced by some Chinese real estate companies in the past period, local governments are seen as one of the areas where a credit crisis is likely to occur. The sharp decline in land sales, which are critical to the finances of Chinese local governments, along with the real estate crisis, has left some institutions facing the risk of default. Last year, a local government finance institution in the city of Guizhou restructured its $2.3 billion loan to 20 years.