China's massive economic stimulus plan has launched some projects that are wasteful, possibly making it hard for investors involved to repay bank loans, China's central bank chief has warnd.
The comments by People's Bank of China governor Zhou Xiaochuan at a forum on Saturday underscored government worry about risks from the torrent of spending helping to shore up economic growth.
Beijing announced a 4 trillion yuan ($US586 billion) stimulus package at the end of 2008 to help the economy weather the global slowdown, and banks have rushed to lend money to government-backed projects across the country.
Mr Zhou said many local governments were jostling for the money via their investment arms or other fund-raising vehicles and a significant amount of China's newly offered loans has been used to fund municipal projects.
"As the front gate is still closed, many local governments had to launch fund-raising platforms, which makes it harder to control, and there may be big problems in future," Mr Zhou warned.
He said China should formally allow local governments to issue bonds to replace the current irregular practices.
Local Chinese governments are not allowed to issue bonds according to law. But a part of China's stimulus plan and as an ad hoc practice, Beijing had issued 200 billion yuan bonds on behalf of provincial-level governments.
Many governments have also been borrowing through controlled vehicles or by giving hidden guarantees for projects.