Some days, it seems like the modern
industry never learns. Tucked into this otherwise rosily optimistic
report on the
to the Chinese financial system is the following passage:
"...The 1994 ban has become counterproductive. It conspicuously
failed to stop China's sub-national governments from borrowing
indirectly. They have set up more than 10,000 financing vehicles,
which took out
from banks to pay for public works, such as roads and irrigation.
The central government has struggled to count this
, let alone control it. Analysts guess that 30%-60% of these loans
may turn sour."
Will Chinese municipal bonds turn out to be the next subprime
bubble? A former Chinese official certainly seems to think so. Back
in September, Cheng Siwei, the former vice chairman of the standing
committee of the National People's Congress, told the World
Economic Forum exactly that, as
It's always hard to discern what exactly is happening in China,
thanks to the opacity of the government and what many
a persistent culture of massaging and outright fabricating
statistics. If there is an implosion in the local
markets, the national government will do everything it can to keep
it quiet by bailing things out behind the scenes.
If China ever rolls out its own TARP program, it will be a sign
that things have gotten very bad indeed.