…if we’re only willing to listen to it. The Wall Street Journal‘s sub-headline says it all:
Borrowing Fueled Chongqing’s Infrastructure Projects, Highlighting National Problem of Reliance on Government Spending
“…10 major investment vehicles the city used to fuel its growth accumulated more than 346 billion yuan ($54 billion) in liabilities,” the WSJ reports. Moreover, this is just the publicly acknowledged debts of the city. The various national government-owned enterprises in Chongqing likely have their own debts, and these are not obligated to discuss them. Northwestern University Associate Professor of Political Science and an expert on local government debt in the People’s Republic of China, Victor Shih, adds
I don’t think it would be a stretch to say that Chongqing local government, state-owned enterprises and state-owned developers collectively owed 1 trillion yuan [$156 billion] at the end of 2011[.]
What has Chongqing to show for this? High risk, for one: a significant per centage of that debt is secured by land the city owns or controls. To pick on Chongqing Yufu Assets Management Co., a city-owned investment vehicle established in 2004 as an example: the city loaded Yufu with land that then was used as collateral. Now its 63% debt-to-asset ratio makes it one of the most heavily indebted financing vehicles sponsored by the Chongqing government. Its 2010 profit of 1 billion yuan sounds good, however, asset sales now are likely to be necessary in order to service that debt—but Yufu’s assets are that land that’s bound up as collateral. Moreover, that 2010 profit is down, sharply, from the prior year’s profit of 1.7 billion yuan, due to just as sharply falling revenue from its land holdings.
What happened the last time vast debt was secured by a land or housing market in a country near you and I? At least in the US, our government can just print up all the money it needs….