China economy recovering, bad debt risks dismissed

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SummaryLocal authorities had racked up 10.7 trillion yuan ($1.7 trillion) of loans by the end of 2010.

was cited by official media last week as saying bad debts could triple by the end of this year to 3 percent, but that would still leave them safely below international norms.

While Shang says the banking system does not face a systemic risk of bad debt, in comments on Thursday he identified loans to local government financing vehicles as an area of concern.

We are tightly controlling new loans and will ensure no new loans to the sector, he said on Thursday.

Local government debt has been a dark cloud hanging over China's public finances since it was revealed that local authorities had racked up 10.7 trillion yuan ($1.7 trillion) of loans by the end of 2010.

The borrowing binge was triggered by the spending demands in Beijing's 4 trillion yuan ($640 billion) stimulus programme launched in 2008 at the depths of the global financial crisis.

Lending

China is set to publish bank lending data for October in the week ahead, with economists polled by Reuters forecasting net new loans of 600 billion yuan ($96 billion).

Those numbers could provide another piece of evidence to reinforce growing views that China's economy is turning up. The head of the country's powerful planning agency said on Saturday this year's 7.5 percent growth target would be beaten.

Statistics on Saturday showed China's trade surplus ballooned to its biggest in 45 months in October as export growth darted to a five-month high above 11 percent, surpassing expectations.

China's economy remains heavily levered to the external sector. Exports were worth about 31 percent of GDP in 2011, according to World Bank data, while an estimated 200 million Chinese jobs are supported by trade or foreign investment.

Data on Friday meanwhile showed infrastructure investment accelerated and output from factories ran at its fastest in five months.

The uptick in key indicators last month, after signs of a rebound emerged in September data, cemented views of analysts and investors that China's rebound was gathering momentum after a raft of measures by Beijing under its so-called policy fine-tuning.

China cut benchmark interest rates in both June and July, has lowered bank reserve ratios three times since late 2011 and made repeated, large-scale liquidity injections into the financial system. It also said in September it had sped up approval on infrastructure projects worth about $157 billion.

All that has engendered a view that policymakers have done enough to keep the economy ticking along. Investors had been concerned that efforts to cool

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