A Chinese project to make a copy of Manhattan, complete with Rockefeller and Lincoln centers is not going well. The replica city is about an hour from Beijing and may need a bailout.

Elsewhere, real estate prices have fallen like a rock in Shanghai, and China’s banks may be understating their exposure to local borrowing gone haywire.

Local Debts Dwarf Official Data

Bloomberg reports China Debts on Local Projects Dwarf Official Data

A copy of Manhattan, complete with Rockefeller and Lincoln centers and what passes for the Hudson River, is under construction an hour’s train ride from Beijing. And like New York City in the 1970s, it may need a bailout.

Debt accumulated by companies financing local governments such as Tianjin, home to the New York lookalike project, is rising, a survey of Chinese-language bond prospectuses issued this year indicates. It also suggests the total owed by all such entities likely dwarfs the count by China’s national auditor and figures disclosed by banks.

Bloomberg News tallied the debt disclosed by all 231 local government financing companies that sold bonds, notes or commercial paper through Dec. 10 this year. The total amounted to 3.96 trillion yuan ($622 billion), mostly in bank loans, more than the current size of the European bailout fund.

There are 6,576 of such entities across China, according to a June count by the National Audit Office, which put their total debt at 4.97 trillion yuan. That means the 231 borrowers studied by Bloomberg have alone amassed more than three-quarters of the overall debt.

Data Disparities

For example, China Construction Bank Corp. (939), the world’s second-biggest bank by market value, has lending to those 113 local government borrowers of 250 billion yuan. That’s 43 percent of the 580 billion yuan the bank said it had extended in loans to all such borrowers at the end of June.

The bank has untapped lines of credit to the vehicles of a further 341 billion yuan.

Disparities like this suggest lenders may have bigger risks than they’ve disclosed publicly, says Charlene Chu, a banking analyst at Fitch Ratings Ltd. in Beijing.

‘Too Big to Complete’

Yao Wei, an economist at Societe Generale (GLE) SA in Hong Kong, says another 7 trillion yuan of debt will be needed to finish projects in the government’s five-year plan through 2015.

“At some point the central government will realize this is too big to complete,” said Yao.

Home Prices Drop in 49 of 70 Cities

Please consider China November Home Prices Are Worst of Year

New home prices dropped from the previous month in 49 of the cities monitored by the government, compared with 33 posting decreases in October, the national statistics bureau said in a statement on its website yesterday. Only five cities had gains in home prices, according to the statement.

“It’s more and more clear that home prices are falling around the country,” said Shen Jian-guang, a Hong Kong-based economist at Mizuho Securities Asia Ltd. “It’s still the critical stage of China’s property curbs, so the government doesn’t want to send any signals of easing of those policies too early as it may reverse the trend.”

Chinese developers will face challenges over the next 12 to 18 months including slowing sales, tight bank credit and downward pressure on prices and profit margins, Moody’s Investors Services said in a Dec. 15 report.

Laughable Official Reporting

Officially, “New home prices in China’s four major cities of Shanghai, Beijing, Shenzhen and Guangzhou each retreated 0.3 percent from October.

I find that preposterous given widespread price-decline reports of 35% or more.

For additional information, please see …

Devastating Trade War Looms as China Skids Towards Hard Landing

As China Skids Towards Hard Landing Hot Money Outflows Increase. Those betting on a huge appreciation of the Yuan need to reconsider.

Worse yet, the risk of a devastating trade war with China is on the rise. For details, please consider China to Impose Anti-Dumping Duties on GM; “Fair Trade” Idea is Self-Serving Scam; Proposal to Stop “Free Sunlight” Gains Support From Mitt Romney

Mike “Mish” Shedlock
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