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Local Government Debt Capped at 16 Trillion Yuan; Debt Ratio Lifted for Commercial Banks

People’s Daily reported that, on August 29, the National People’s Congress passed a resolution setting the cap for the government debt in 2015 at 16 trillion yuan (US$2.51 trillion). The number consists of 15.3 trillion yuan (US$2.4 trillion) for the debt existing at the end of 2014 plus 60 billion yuan (US$9.4 billion) of new debit from 2015. The report said that it is the first time that China has set a limit on what the local governments can borrow. The People’s Congress also revised the commercial bank regulation. Effective October 1, 2015, it eliminated the ratio of 75 percent of savings to borrowing. The article said that the ratio has been in existence for 20 years, but due to the slowdown in the economy, banks need to increase their support for the real economy. Moreover, since commercial banks have been commercialized and can assume all of the risks themselves, the limit is no longer needed.

Source: People’s Daily, August 30, 2015