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Chinese regulators continue to address the country’s ongoing problems with local government debts. In a new notice, the China Banking and Insurance Regulatory Commission (CBIRC) and Ministry of Finance recently emphasized that banking and insurance institutions must not increase the hidden debts of local governments. This means that local government investment companies will be required to reduce existing debts, making them unable to easily find liquidity.
The “Guiding Opinions for Banking and Insurance Institutions to Further Do a Good Job in Preventing and Resolving Hidden Debt Risks of Local Governments” (Circular 15) stated that financial institutions may not add new hidden debts to local governments. Circular 15 also states that banking and insurance institutions must understand local government financing institutions’ debt and medium and long-term expenditures before providing finance. The CBIRC also issued a separate document providing guidance for loca
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