A speculative frenzy of borrowing and bidding up is at work. If and when prices crash, there will be hell to pay.
Signs of the times: government bureaucracies funding themselves by foisting debt on state-owned business enterprises; local governments raising capital by selling land at sky-high prices to corporations they own; and a People's Bank of China lavishing liquidity on the entire system in a way that makes Federal Reserve Chairman Ben Bernanke look downright stingy.
If you think that global investment banks are petri dishes for conflict of interest, try Chinese regional government entities:
Shunyi County, in the capital's suburbs, sold a residential plot last month for $400 per square foot, a new national record. The bidders were mostly state-owned companies and the winner none other than a developer owned by Shunyi County. Where the developer came up with the money for the purchase is unclear, but the county will nevertheless book $740 million as revenue from the sale.
It's not hard to imagine that one of these days some prototypical Chinese regional government official -- under pressure from Beijing to grow the local economy, owning stakes is several local enterprises, allowing those enterprises to flout environmental regulations, and forcing local banks to loan those enterprises money on favorable terms or forcing the enterprise to loan money to a government entity -- is going to be Exhibit A in an Asian Crisis in One Country. And that he will make our errant banking chiefs look like a bunch of Fezziwigs by comparison.
And in China, they won't tax half of Exhibit A's bonus. They'll execute him.
UPDATE: The Financial Times reports today that "Chinese banks will raise as much as Rmb500bn ($73bn) from capital markets next year to boost their core capital in the wake of this year's lending boom." Chinese banking officials boast that the banks are in excellent shape:
"Credit quality in general has improved and non-performing loans have reached their lowest level ever," Mr Liao said. "By number and by nature, our banks are stronger and healthier than at any time in history."
The ratio of non-performing loans at all China's commercial banks fell to 1.6 per cent at the end of November, while the total outstanding level of bad loans fell below Rmb500bn for the first time in more than a decade.What will a bubble burst do to those high repayment rates?