The question is whether this slows down new lending. Appears it does?
By Xie Yu
March 15 (Xinhua) — The China Banking Regulatory Commission has drafted a guideline to boost the risk control of local governments’ financing vehicles. The guideline reiterated that the authority will control the total volume of loans that go to local governments’ financial vehicles, or LGFV, demanding that the volume should not surpass the level of late 2011. Chinese banks had 9.1 trillion yuan of outstanding loans issued to LGFV as of September 30, 2011, and at least 65 percent of these loans were fully covered by cash flows. The current loans amount to about 9.3 trillion yuan. The regulator requires banks to keep the percentage of those loans below the 2012 level. Local governments have set up more than 6,500 financing vehicles to raise money for projects.