Daily Lessons from Life 28 July 2010 - China moves to calm local govt debt fears

"China moves to calm local govt debt fears - Wed, Jul 28, 2010 AFP

SHANGHAI, CHINA (AFP) - China's banking regulator has moved to ease concerns after reports said nearly a quarter of loans to local governments were at serious risk of default.


Century Weekly magazine said this week that 23 percent of the 7.66 trillion yuan ($1.5 trillion) extended to local governments' financing vehicles were in danger of turning sour.

It cited estimates by the China Banking Regulatory Commission.

However, the agency downplayed the risks to the banking system in a statement sent to AFP."

As with anything in China, BIG is the norm! Big earthquake, big flood, big population affected, big structures, big building, big BET, and BIG RISK!

And hence, BIG Fraud!!

Lessons for me are:

1. the world focused conveniently on the BIG growth, the big consumption boom that everyone wants to be a part of. This is understandable as self-interest focused the mind and conveniently allowed us to forget about the big picture and the 'right things to do'! Not spending beyond what is affordable is simply too inconvenient to think about as it will slow down the 'all important' growth!;

2. for many on the grounds in China, the excesses of the local governments in 'creating' growth or monumental projects to 'please the central governments' and, if convenient, to take a cut or two of the projects' values being awarded! Many white elephants or dragons or whatever you want to call it, sit idle after completion. Then turn to ruin with neglect and poor maintenance. Growth for growth sake simply made no sense. Yet, many smart economists and financial advisers choose to look for the 'positive'!;

3. eventually, unfortunately you may say, someone has to pay for it! It invariably falls on the people! The 1.3B people. Or some of them. It is easy to get a dollar from each one of them to cover up the billions squandered by a few hundreds or a few thousands irresponsible and immoral people who were entrusted to do 'the right things'! Then the normal charade of indignation and 'witch hunting' after the crisis. And then, a few months or a few years later, another round of such excesses begin the destructive cycle!

The central government has been paying attention to all indicators of excesses and excessive risks even though the local governments fight the effort. It is a never ending process and there will be wins and losses. Hopefully the wins are more and of a high impact than the losses. Otherwise, China's march to be the next superpower of the new world may be built on shifting sands.