Monday, 1 August 2011

"Chinese Cities’ Risky Borrowing Binge" - Business Week.

Loudi sold bonds to build a swimming complex, an expressway, and water treatment facilities

China shows almost unbelievable levels of city infrastructure spending.  Sanderson and Forsyth predict that up to a trillion dollars worth of borrowed money will never be repaid.

In the example of Loudi, a city of 4 million in Hunan province, the city borrowed $185 million dollars for an Olympic swimming complex, an expressway and water treatment.  No Olympics will be scheduled here ever.  The average citizen take-home is $2300 but the land offered in security is valued at $1.5 million per acre, about the same as prices in a Chicago suburb where the average household earns more than $250,000 annually.  "The debt isn't a problem as Loudi is not a developed place", says an official with the city's financing authority, "It's an emerging city.   When we get to the end of the loan, we'll just pay it back".
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