You had me at "Copy of Manhattan"

China Debts Dwarf Official Data With Too-Big-To-Complete Alarms

A copy of Manhattan, complete with Rockefeller and Lincoln centers and what passes for the Hudson River, is under construction an hour’s train ride from Beijing. And like New York City in the 1970s, it may need a bailout.

Bloomberg News tallied the debt disclosed by all 231 local government financing companies that sold bonds, notes or commercial paper through Dec. 10 this year. The total amounted to 3.96 trillion yuan ($622 billion), mostly in bank loans, more than the current size of the European bailout fund.

There are 6,576 of such entities across China, according to a June count by the National Audit Office, which put their total debt at 4.97 billion yuan. That means the 231 borrowers studied by Bloomberg have alone amassed more than three-quarters of the overall debt.

OR, there is a lot more debt out there, unaccounted for. I think "Unaccounted For" is going to be the phrase of China 2012.

And with these loans essentially secured by future land sales, falling prices are the start of a self-feeding downward spiral.

The financing companies accounted for almost half of the 10.7 trillion yuan in all local government debt tallied by the official audit.

Go big, or go home. And debt from reviewed issuers rose 10% year on year. It does not appear to be slowing down, despite central government warnings to the contrary.

Furthermore, the data doesn't add up, implying that totals are most likely higher than disclosed.

Yao Wei, an economist at Societe Generale SA in Hong Kong, says another 7 trillion yuan of debt will be needed to finish projects in the government’s five-year plan through 2015.

“It’s very likely that senior government leaders have no way of knowing which numbers provide the best picture of the evolving lending binge China’s banks seem to be on,” said Carl Walter . . .

The number of loans going bad will rise because of the borrowers’ poor cash flow, according to a November report from London-based HSBC Plc. Around 68 percent of 184 local financing companies that have sold bonds analyzed by HSBC had a return on capital lower than 5 percent, the benchmark lending rate last year, compared with 37 percent for all 499 corporate issuers it studied, the report said.

For example: Gansu Provincial Highway Aviation Tourism Investment Group Co. did not have sufficient cash flow to cover even interest this year, fortunately they will just take out another loan to cover the interest and they will keep doing this until 2019 at which time they will owe 130billion yuan.

Gansu Highway’s situation encapsulates the problem of local government borrowers, which often have minimal or no plans to repay debt aside from borrowing more money, says Fitch’s Chu.