Local Government Borrowing Drives Chinese Development

Washington Post (h/t Ritholtz):

A building boom by thousands of local governments that became the backbone of the country’s stimulus program started in November 2008 — on borrowed money. The financing companies were created starting in the 1990s and enabled provinces, cities, counties and townships to bypass rules barring most from selling bonds.
Projects include a stadium, which resembles Beijing’s iconic Bird’s Nest Olympic venue, in Jinan, the capital of eastern China’s Shandong province; and a superhighway in the country’s second-poorest province of Yunnan that stretches into the foothills of the Himalayas, with no cities of more than 1 million people.
In Tianjin, southeast of Beijing, a sea of hundreds of construction cranes stretches along both sides of the river at an oxbow that gives the Yujiapu financial district its Manhattan-like shape, testimony to the scale of China’s ambitions. Downriver are the ruins of centuries-old forts stormed by British and French troops during the Second Opium War in 1860.
To build Yujiapu, Tianjin officials are piling onto borrowing that is already at least almost half a trillion yuan — equivalent to half the annual per capita income of the city’s 13 million people. More than 5,000 people were moved out of the area starting in 2008 to make way for the project, among the millions nationwide evicted from homes to make way for China’s urbanization projects.
The planned 164 million square feet of office space by 2020 in Yujiapu and across the Hai River in Xiangluo Wan, or Conch Bay, is more than one-third of the 450 million square feet in Manhattan.
One of the companies building Yujiapu — Tianjin Binhai New Area Construction & Investment Group — sold 10 billion yuan in bonds in November. It earmarked 1 billion yuan from the sale to fund the construction of the district’s transport hub, which includes a high-speed rail line that will cut the time to Beijing to 45 minutes. In the first half of the year its debt, mostly from banks, rose 11.9 percent from the end of 2010 to 71 billion yuan, according to the prospectus.
More borrowing is needed, Tianjin Vice Mayor Cui Jindu said Sept. 16. New loans to the city’s financing vehicles may slump by as much as 140 billion yuan in 2011 from last year’s level as lenders curb risks and boost support to small and medium-size businesses, he said.
“If the banks don’t give us any new loans, there will be problems,” Cui said, saying some projects in the city may not get completed. Tianjin had “no problem” repaying loans, having to that date paid off 33 billion yuan of the 39.5 billion yuan in principal due this year, he said.

I'm getting the feeling that China may be more of a problem than Europe by late 2012 or 2013.  I have little or no faith in the capitalist skills of the Chinese Communist Party.  The massive construction boom since 2008 seems like major bubble blowing to me.  What's worse for farmers, an economic collapse in China could cause commodity markets to crash.  It won't be easy to get good information out of China, but I'm going to keep an eye on economic updates from the Middle Kingdom anyway (data from Australia should help).