Chinese Municipalities Taking on Excessive Debt to Fund Development Frenzy
Ocala Star Banner reports: Though the breakneck pace of the Chinese economy’s expansion shows few signs of abating in the near-term, Florida-based Ocala.com has dug up a report by Moody’s Investor Service’s China desk that identifies one possible foil. As the country urbanizes and quickly develops large-scale infrastructure to support its economic prowess, localities in China are taking on massive amounts of debt to continue the construction boom.
That debt is piling up on state-owned banks, with municipal debt totaling $2.2 trillion in 2010 alone – or one-third of China’s GDP – according to Beijing’s statistics. For the real estate sector’s prospects, the connection is clear: development projects such as infrastructure and extensive office complexes are being funded heavily with debt. Should either the debt or the value of the properties (or the land they sit on) collapse, it is nearly inevitable the other will too -- a situation that would inevitably reverberate around the world’s economies.
In divulging this information, Ocala.com relied on data aggregated by Real Capital Analytics (RCA) to speak about one city currently leading the explosion of development occurring in inland China. The city of Wuhan, which according to RCA data has seen nearly $25.0 billion in land trade hands over the past five years, is one of the worst offenders when it comes to taking on risky debt. The city has promised to develop over 200,000 apartment units and a brand new subway system over the next several years as the surrounding provincial areas urbanize.
For more on this interesting topic, please see the full article on Ocala.com.
View the full article on Ocala Star Banner: Chinese Municipalities Taking on Excessive Debt to Fund Development Frenzy
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Posted by: Nina Turner