BEIJING: China may be forced to bail out banks that made loans for local-government projects under the unprecedented stimulus programme unleashed in 2008, according to Citigroup Inc and Northwestern University's Victor Shih.
In a "worst-case scenario," the non-performing loans of local-government investment vehicles could climb to 2.4 trillion yuan or US$350 billion (US$1 = RM3.30) by 2011, Shen Minggao, Citigroup's Hong Kong-based chief economist for greater China, said yesterday.
"The most likely case is that the Chinese government will engineer a massive financial bailout of the financial sector," said Shih, a professor who spent months researching borrowing by about 8,000 local government entities. Read more
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