Nomura Says China May Allow Defaults on Some Local Debts

Policy makers in China may allow some local governments’ debt to default next year to improve market discipline as borrowings surge, according to Nomura Holdings Inc.

Local government financing vehicles’ debt grew 39 percent from 2010 to 19 trillion yuan ($3.1 trillion) as of the end of 2012, Nomura economists led by Zhang Zhiwei wrote in a report released today. That’s 37 percent of gross domestic product, according to the investment bank. The estimate includes “interest-bearing debt such as bank loans and bonds,” as well as “non-interest-bearing debt,” according to the report.