The crisis seems to gloom large, as the governments have to pay nearly half of RMB10.7 trillion ($1.7 trillion) in debts in next three years, which was accumulated during the financial crisis in 2008-09.
The government is worried that low level of liquidity will increase the cases of defaults and non-performing loans, arising the risk of non-recovery of debt, reported Financial Times.
Extended term for maturities will help local governments to pay off the debts, thus supporting the country’s economy, which is booming at the rate of 8% this fiscal and hopes to perform better in future.
However, the China Banking Regulatory Commission had insisted until the middle of 2011 that local governments must pay back their loans in full and on time.
China International Capital Corp chief strategist Huang Haizhou was quoted by the news website as saying that the problem is rooted in the national fiscal system.
"In order to dampen the increasing problem, the government should implement a successful fiscal reform over the next three to five years," Haizhou said.
The federal government encouraged local governments to borrow the money as larger extent between 2008 and 2010, which led local governments to borrow excessively form financial institutions, as well as state-owned banks, by the quickest way possible.
