Rick Lowe

A couple friends sent a link to the following video that is most eye opening. China is building ghost cities. It’s like Alaska’s bridge to nowhere.

Around the same time I received the link to the video, this article by Eric Lam entitled China Waist-deep in debt appeared.

Here’s a snippet:

While investors around the world remain fixated on the rampant fiscal and economic problems of the United States and Europe it turns out China, the country the rest of the world is depending on to drive growth, has some serious debt problems of its own.

Benjamin Tal, deputy chief economist with CIBC World Markets, said the debt-to-GDP ratio for China may be north of 50% — almost double the official figures — once the off-balance-sheet debt of local governments is taken into account.

“Some provinces in China sit on debt ratios that make Greece look good,” he said.

Overall local government debt stood at 7.38-trillion yuan (about $1.1-trillion) at the end of 2009, increasing 70% in that year, figures from the China Banking Regulatory Commission said.

Mr. Tal said extreme estimates peg that figure at as much as 11.4-trillion yuan ($1.7-trillion), although consensus has the debt load closer to 9-trillion ($1.36-trillion).

The reason for all the debt is the central government’s aggressive push into infrastructure spending as part of its stimulus plan to fight the recession caused by the 2008 financial crisis.

As it turns out, only about a quarter of that spending was financed by Beijing — most of the bill was covered by state companies or local governments by borrowing from China’s state-owned banks.

Much of this debt came from Local Government Financial Platforms (LGFPs), special debt vehicles used to borrow funds that carried either explicit or implied guarantees on the loans. LGFPs tripled in 2009, Mr. Tal said.

Read the rest of the article here…