01/04/2012, 00.00
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Chinese provinces’ massive debt reaches crisis point

by Wang Zhicheng
China’s audit authorities find debt irregularities worth 530 billion yuan, but investors fear bad debt might actually be 2-3 trillion (US$ 360-475 billion).
Beijing (AsiaNews) – China’s National Audit Office said it found 531 billion yuan (US$ 84 billion) worth of irregularities in local government debts, the government’s Website (www.gov.cn) reported. Increasingly, there are concerns that bad loans held by local governments might not be repaid, which could cause the collapse of banks that made the loans.

The figure however is but a fraction of the 2-3 trillion (US$ 360-475 billion) of sour loans economists reckon are buried in the 10.7 trillion yuan of debt local governments had by the end of last year. The problem itself goes back to the 2008-2009 stimulus-fuelled credit binge.

Thanks to easy loans, local governments funded useless infrastructure construction with little or no economic spinoffs.

The net result is that many houses, offices and entire cities now stand empty or unsold (at least 50 per cent). Many companies also have large unsold inventories.

Many provinces got involved in massive infrastructure projects, including high-speed railway, airports in remote areas, and ghost ports. Much of it was funded by government-backed loans that Beijing has not repaid. Provinces are now stuck with debts. In fact, Prof Larry Lang recently said that China was on the verge of a major crisis (see “As China’s govt cheats, its economy is “on the brink of bankruptcy”, Chinese scholar says,” in AsiaNews, 30 November 2011).
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