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Lost in the worry over Greek debt defaults, China
Daily reports on a default story of more significance.
Please consider Local governments
run up huge debts, risk defaulting
Local governments
had an overall debt of 10.7 trillion yuan ($1.65 trillion) by the end of
2010, said China's top auditor on Monday in a report
to the National People's Congress.
He warned that some were at
risk of defaulting on payments.
It was the first time the world's
second-largest economy publicly announced the size of its local governments' debts. The scale amounts to more than one-quarter of its GDP in 2010, which stood at 39.8 trillion yuan.
Concerns are rising that the problem of local government debt could destabilize the financial system of the country if it
is not managed properly, especially after the central government's tightening of the housing market, which could affect local fiscal revenue that
is highly dependent on land sales and make
debt repayment more difficult.
In addition, China's ambitious
plan to construct 36 million affordable
homes during the coming
five years, including 10
million in 2011 and 10 million in
2012, added to worries
about increasing capital tension and rising non-performing loans in commercial banks.
About 79 percent of the local government loans were made by banks across the country, according to the NAO.
Lu Zhengwei, chief economist at the Industrial Bank, said the
figures released were moderate compared with previous estimates, and risks lying in these loans are quite limited.
"Overdue loans take up only a small proportion of the total lending
and local governments didn't
pay them in a timely way mainly
because deadlines were too concentrated, not because of deteriorated ability to repay."
$1.65
Trillion is a mountain of
cash even to the US. How much
of that is at risk is
the question, but even 10% would
be significant.
Moreover, it is certain that what cannot be
paid back, won't be paid back. As in the US,
once assets backing loans crash, so will willingness and ability to pay back the loans. Thus, efforts by some to downplay the odds should fall
on deaf ears.
Speculation in China is
as least as rampant as it was
in the US. For example, please
consider Ponzi Financing Involving Copper Trade Gone Wild In China.
Also consider Wave of Violent Protests, Rioting, Bombings Hits China; Expect More Riots When China's Credit Bubble Pops, Exposing Mountains of Fraud
Finally, please consider World's Biggest Property
Bubble: China's Ghost Cities Revisited; 64 Million Vacant Properties
As long as credit bubbles
expand, no one heeds
warnings like that issued by China's top auditor. Then when the bubble bursts, everyone cries they were not warned, they were taken advantage
of, and they deserve a bailout.
One thing's for certain, when
China's credit bubble pops, it will rock the world.
Mish
GlobalEconomicAnalysis.blogspot.com
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Thoughts on the great inflation/deflation/stagflation
debate as well as discussions on gold, silver, currencies, interest rates,
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