China Regional Governments: Chinese regional governments have issued a record amount of special bonds, totaling 205 billion yuan ($29 billion), to support small and medium-sized banks (SMB) facing potential systemic risks, especially amid a prolonged real estate crisis. This year’s issuance is the highest on record since 2020 when local governments were permitted to issue special bonds to reinforce capital in regional banking systems. The move is a response to the rising risks among China’s 4,000 smaller banks, grappling with fallout from the real estate crisis and increased bad debts following the COVID-19 pandemic.
Smaller banks in China collectively hold 92 trillion yuan ($13 trillion) in assets, nearly 30% of the financial system, making them crucial providers of financing to private enterprises, particularly small firms. However, their vulnerability to economic downturns is evident, given their substantial exposure to the struggling real estate sector and local government financial vehicles facing a growing risk of defaults. Concerns about weaker corporate governance, risk management, and susceptibility to financial improprieties and corruption have added to policymakers’ worries.
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The issuance of special bonds to support SMBs began in 2020 when the State Council allowed local governments to recapitalize these banks using funds raised from special bonds. Since then, a total of 438 billion yuan ($62 billion) in local government bonds have been issued to support SMBs. The move reflects the Chinese leadership’s commitment to addressing risks in small and medium-sized financial institutions, emphasizing timely actions to ensure no systemic risks emerge.
As policymakers strive to manage risks in real estate, local debt, and SMBs, the challenges faced by smaller banks highlight the broader economic concerns in China. The surge in special bond issuances indicates a proactive approach to fortifying regional banking systems and mitigating potential financial vulnerabilities.
Our Reader’s Queries
What is the regional structure of China?
China is geographically divided into 22 provinces, five autonomous regions, four municipalities, and two semi-autonomous special administrative regions. The national capital is Beijing, while Shanghai is the largest financial center and most populous city in the country.
What are the 3 levels of government in China?
Similar to the United States, the People’s Republic of China comprises three primary branches – legislative, executive, and judicial. These branches consist of several groups, which we will delve into shortly.
What are the 7 regions of China?
In China, there are seven regions: East China (EC), Middle China (MC), North China (NC), Northeast China (NEC), Northwest China (NWC), South China (SC), and Southwest China (SWC). Each region has its own unique characteristics and culture. By understanding the differences between these regions, one can gain a deeper appreciation for the diversity and complexity of China as a whole.
What regional organization is China part of?
APEC, APT, ASEAN (as a dialogue partner), and ARF are all important organizations in the Asia-Pacific region. These groups work together to promote economic cooperation, telecommunications, and regional security. By collaborating with one another, they are able to address common challenges and achieve shared goals. As dialogue partners, ASEAN plays a key role in facilitating communication and cooperation between these organizations. Overall, these groups are essential for promoting stability and prosperity in the Asia-Pacific region.