What’s happening in Liaoning province?
Gordon Chang on China’s debt problems in Forbes:
About 85% of Liaoning province’s 184 financing companies defaulted on debt service payments in 2010 according to a report from the province’s Audit Office. The report also noted that 120 of these borrowers, de facto government agencies, operated at a loss last year…debt has skyrocketed as local officials incurred obligations through LGFVs, local government finance vehicles. The central government’s National Audit Office said these companies, at the end of last year, had taken on 10.7 trillion yuan of debt. No one, however, knows the true amount of LGFV indebtedness, and some have calculated the real amount to be more than double the official figure…
The case of China Zhongwang Holdings, a giant aluminum producer, illustrates how Liaoning province effectively went into debt in a roundabout manner—and concealed the borrowing. As disclosed in a footnote in its 2009 financial statements, Zhongwang had borrowed 2.3 billion yuan from two Liaoning banks and, as reported by Naomi Rovnick of the South China Morning Post, had “given the money” to a government-owned entity. Zhongwang, based in Liaoning, kept the loan on its books but disclaimed any responsibility for repayment. Apparently, the series of money transfers among Liaoning’s government-owned entities through Zhongwang was intended to facilitate development…LGFVs can continue to meet existing debt obligations as long as they can borrow new funds…
China’s debt-fueled growth is slowing fast, probably faster than official GDP figures indicate. Electricity usage, perhaps the best barometer of economic activity, was essentially flat this summer on a month-to-month basis. Moreover, export and shipbuilding orders are down. The closely watched HSBC purchasing managers’ index, at its record lowest point, is close to negative territory and headed south…there are plenty of reasons to think that China’s economy is already landing hard.
We’re seeing the same sorts of reports on China’s banking system again and again these days. A few years ago, when export growth was fueling China’s growth, it was easier to ignore China’s problems with cooked books and bad loans. Three years ago we hypothesized that when export growth slumped, as it had to when the West stalled, there would be trouble ahead. It looks more and more as if that time has arrived.
September 23rd, 2011 at 12:51 pm
What do we call people who keep callin something that keep not happenin? Where I come from we cal that a crank if we’re feeling charitable, and blowhard otherwise. Mr Chang had been predicting China’s collapse for over a decade, so far, nothing doing. I recommend his book The Coming Collapse of China, written in 2000, predicting a collpase by 2006.
Only in the world of academia do people keep saying the wrong thing, with a proven track record of saying the wrong thing… and still keep getting cited as if he knows anything.
Mr Chang might almost be a liberal.