Local govts limit expansion at indebted universities

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Several local governments in China have moved to curb lending to indebted universities amid worries of default under tight credit conditions.

This came after the central government showed concern over rising default risks in local governments funding platforms that followed tightening measures to curb inflation.

The local governments have been urging indebted universities to pay back bank loans and have introduced new policies to curb university expansion.

In east Anhui province, the government will not approve new infrastructure projects if university campuses currently have the capacity to accommodate all the students, according to Yang Delin, deputy director of Anhui's education department.

He said universities in Anhui are strictly forbidden to take bank loans or borrow money from elsewhere without government approval.

"Universities should make sure loans are used where they are needed most. For those that don't pay back loans, the government will cut funding used to help them pay back loans," Yang said.

According to Yang, the education department created a university debt database in September to track the progress of university loan repayment.

While in central Hubei province, local education authorities have urged local universities to pay back all 13.3 billion yuan of loans in the next five to eight years.

The universities are required to sell idle or inefficiently used lands along with other measures to pay back loans.

Examples of education funds being lavished on unnecessary facilities came under the spotlight in recent years as some colleges built golf courses or luxury hotels in scenic spots, sparking national debate.

A university in east Shandong province spent 3 million yuan on a 140-meter-long gateway.

China's higher educational institutions have been expanding rapidly following a government decision to enroll more university students in 1999.

Now 6.6 million students graduate from college annually, compared with only 1.15 million a decade ago, according to statistics released by the Ministry of Education.

To cope with the rapid expansion, many universities went to banks for huge loans to support construction of dormitories, dining halls and classrooms.

Statistics released by the National Audit Office show a total of 1,164 Chinese colleges were saddled with 263.5 billion yuan (US$41.5 billion) of debt by the end of 2010.

As early as 2007, some legislators warned that indebted universities could face severe financial crises.