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China's national auditor on Wednesday detailed various illegal actions and misappropriations by local-government financing vehicles, but also progress that has been made in rectifying the practices.


The auditors' report, which covered the actions of local-government financing vehicles through the end of 2010, found billions of dollars worth of infractions.


Such vehicles, set up by local governments to skirt limits on borrowing directly from banks to fund projects such as infrastructure construction, have become a focal point of risks in China's banking sector.


By the end of 2010, local-government financing vehicles had made improper investments worth CNY35.1 billion ($5.6 billion) in securities markets, real estate, or highly polluting and energy intensive projects, the National Audit Office said, of which CNY14.0 billion has already been unwound.


There was also CNY46.5 billion worth of illegal funding guarantees made to local-government financing vehicles, and CNY73.2 billion of loans secured with improper collateral.


Through changes in loan agreements and other measures, CNY22.0 billion of illegal funding guarantees and CNY23.1 billion of loans with improper collateral have been resolved, the statement said.


Last week, Bank of China Ltd. (601988.SH) economists warned that local government debt is likely higher than the CNY10.7 trillion (around $1.69 trillion) official estimate, and that it could be a major risk next year.


The economists cited the banking regulator as saying it had become aware of an increasing number of unauthorized local government financing platforms.


The auditors' report also showed CNY58 billion worth of loans had been improperly lent or embezzled from five commercial banks. Of that amount, CNY53 billion has already been resolved, the report said without specifying.

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