The Chinese government has increased its credit support to local governments where a credit crisis is likely.
According to sources close to the subject, the largest Chinese banks increased the maturity of loans given to local government financial institutions to 25 years and offered temporary interest payment support on these loans.
In recent months, Chinese banks have been providing loans to top-rated companies and local government institutions with a maximum term of 10 years. Sources stated that some loans were provided for 4 years with no principal or interest payment.
Although there have been no default cases like some Chinese real estate companies have experienced in the past, local governments are seen as one of the areas where a credit crisis may occur.
The sharp decline in land sales, which is critical for the financials of Chinese local governments, along with the real estate crisis has left some institutions at risk of default.
Last year, a local government finance institution in the city of Guizhou structured a $2.3 billion loan for up to 20 years.