Dave Barboza has an excellent piece on Wuhan in the NYT:

As municipal projects play out across China, spending on so-called fixed-asset investment — a crucial measure of building that is heavily weighted toward government and real estate projects — is now equal to nearly 70 percent of the nation’s gross domestic product. It is a ratio that no other large nation has approached in modern times. Even Japan, at the peak of its building boom in the 1980s, reached only about 35 percent, and the figure has hovered around 20 percent for decades in the United States…

In the case of Wuhan, a close look at its finances reveals that the city has borrowed tens of billions of dollars from state-run banks. But the loans seldom go directly to the local government. Instead, the borrowing is done by special investment corporations set up by the city — business entities whose debt shows up nowhere on Wuhan’s official financial balance sheet. Adding to the risk, the collateral for many loans is local land valued at lofty prices that could collapse…

Wuhan Urban Construction Investment and Development…has 16,000 employees, 25 subsidiaries and $15 billion in assets — including the possibly inflated value of the land itself. But it owes nearly as much, about $14 billion. “U.C.I.D. is heavily in debt,” a company spokesman, Sun Zhengrong, conceded…UBS predicted that local government investment corporations could generate up to $460 billion in loan defaults over the next few years…

Wuhan plans to spend about $22 billion on infrastructure projects, an amount five times as large as the city’s tax revenue last year. And aspirations notwithstanding, Wuhan is still relatively poor. Residents here earn about $3,000 a year, only about two-thirds as much as those in Shanghai…

“What we’re seeing was not very common before 2008,” said Fu Zhihua, a research fellow at the Research Institute for Fiscal Science. “Now, all cities are rushing headlong into this.”…municipal officials in China keep their jobs and earn promotions on the basis of short-term economic growth. “The fact is, local governments in China compete to grow G.D.P. in order to get promoted as government officials,” said Zeng Kanghua…

Despite selling about $25 billion worth of land over the last five years, according to Real Capital Analytics, a research firm based in New York, Wuhan is struggling…In 2009, for instance, Wuhan’s big investment company, Wuhan U.C.I.D., borrowed $230 million from investors and then used nearly a third of the money to repay some of its bank loans. Mainly, Wuhan’s leaders are counting on property prices to continue defying gravity…

Credit Suisse identified Wuhan as one of China’s “top 10 cities to avoid,” saying its housing stock was so huge that it would take eight years to sell the residences already completed — never mind the hundreds of thousands now under construction.

Empty cities. It would appear that this won’t end well. In 2005, China’s growth was 70% dependent on exports. It seems clear from the comments by Fu Zhihua that in the last few years, China has ramped up construction spending as export growth has attenuated. It remains to be seen if China can pull yet another rabbit out of its hat.

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