Wednesday, March 10, 2010

China's Mandats

"China's local governments, which ran up huge debts during the record-breaking lending spee of the past year, are now feeling the pinch as authorities in Beijing tighten credit. ... Now regulators in Beijing, worried that local governments won't be able to apy back all their loans, are increasing their scrutiny of this kind of debt. ... Estimates of the total debt accumulated by investment vehicles set up by local governments range from six trillion yuan (around $878 billion) widely cited in the Chinese media, to the 11 trillion yuan calculated by Northwestern University professor Victor Shih. ... Several Chinese banks contacted Wednesday didn't respond to queries about such lending. Although local governments in China are generally prohibited from going into debt, most manage to circumvent the law by setting up their own companies to do the borrowing. Supported by land holdings and the promises of officials, such firms found plenty of obliging banks during the recent lending spree", Andrew Batson at the WSJ, 25 February 2010, link:

Shades of the Mandats issued during the French Revolution. Imagine, governments issuing paper backed by land. What will they think of next?

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