China Local Debts for ’Too-Big’ Projects Dwarf Official Data

[nwoodman]

 

http://www.bloomberg.com/news/2011-12-18/china-debts-dwarf-official-data-with-too-big-to-complete-alarms.html

 

"Local governments’ reliance on land sales for revenue means a drop in property prices may expose weaknesses in the borrowing, Huang of ICBC said.

“The real problem is the real estate market cannot fall, the price can’t go down,” he said. “If the property market really falls, the local government financing vehicle problems will really come out. Not only will they have problems, but the banks will have problems.”

There are signs the market is already declining, with residential property prices falling in November from the previous month in 49 cities of the 70 measured, the worst performance this year. The cities of Guangzhou in the south and Wuhan in central China canceled land sales in the last three months.

Tianjin, which isn’t among the cities piloting municipal bonds, was reliant on land sales for 41 percent of its income in 2009, according to China Index Academy, a Beijing real-estate research firm.

That doesn’t bother Xu Hongzhi, the chief accountant for Tianjin Binhai Construction, which is building Yujiapu’s transport hub. He said that the company can pay its debts because the area’s economy is growing at 10 percent a year.

“There is no risk,” he said." 

 

 

Of course not!

[Guest Hester]

"The Chinese government's balance sheet directly does not have a lot of debt. The state-owned enterprises of the local governments and all the other ancillary borrowing vehicles have lots of debt and its growing at a very fast rate. The assumption is that the state stands behind all this debt. We see that the debt in China, implicitly backed by the Chinese government, probably has gone from about 100% of GDP to about 200% of GDP recently. Those are numbers that are staggering. Those are European kind of numbers if not worse."

 

Jim Chanos