Tucked away in the soft underbelly of the economic dragon is $540 billion in debt undisclosed by China's National Audit Office. The country's credit rating could turn negative over the bad loans:
Bad debts held by local governments in China are a far bigger problem than first estimated, ratings agency Moody's has warned...
"When cross-examining the findings by the 27 June National Audit Office (NAO) report, in conjunction with reports from Chinese banking regulators, we find that the Chinese audit agency could be understating banks' exposures to local governments by as much as 3.5tn [yuan]," said Yi Zhang of Moody's.
Ms Zhang explained that since these loans were not covered by the NAO, they were not considered as real claims on local governments by the audit agency.
"This indicates that these loans are most likely poorly documented and may pose the greatest risk of delinquency," she added.
The hidden debt changes China's Debt to GDP ratio dramatically:
Thanks to successive years of fast economic growth and even faster government revenue growth, the official debt-to-GDP ratio was 17.7% at the end of last year, far lower than almost any other major economy.
The trouble is that excludes local government borrowing, the current surge in loans backstopped by Beijing and bad assets cleared from the banking system but still floating about.
When all are thrown into the pot, analysts estimate that China's debt may be closer to 60% of GDP...
China may no longer be able to hide its potential credit collapse:
David Roche, an economic and political analyst who manages the Hong Kong-based hedge fund Independent Strategy, says the world's third-largest economy is now on the brink, faced with the inevitable reckoning that follows an extended bank-lending binge.
"We've got the beginnings of a credit-bubble collapse in China," said Roche, predicting the economy will likely cool from its stellar double-digit growth rate to a 6% annual expansion as a result.
Overzealous construction in China has created a property bubble, leaving abandoned malls and ghost cities in its wake: