That China has pumped up it’s economic growth with a huge mountain of new debt is not in doubt. In 2008, the quick debt fueled economic stimulus was proportionately way bigger than any other economy in the world. But the Chinese have never really turned of the tap: debt continues to rise.

Much of it has been used to build amazing infrastructure: fast rail; motorways; power stations; dams; whole cities. Most of that is done by “local” Government, funded by state owned banks.

Much of this infrastructure has been built ahead of the need for it. But that’s not my focus today …

This from the New York Times:

The total debt of local governments in China has soared to nearly $3 trillion as the country’s addiction to credit-fueled growth has deepened in recent years, according to the findings of a long-awaited report released on Monday by the central auditing agency.

In the report, which is likely to further raise concerns about China’s debt problem, the National Audit Office found that local governments across the country had accumulated 17.89 trillion renminbi, or $2.95 trillion, worth of debt obligations as of the end of June. That was an increase of 12.7 percent [in just 6 months!] from December 2012, when local government debt stood at 15.88 trillion renminbi, the report said.

The June figure also represented a sharp increase of 67 percent from the end of 2010 …

The National Audit Office seems to have been pretty thorough. Get your head around this:

… the agency said, it deployed 54,000 auditors across the country, who combed through the books of more than 62,000 government departments and institutions and examined 3.4 million debt instruments related to more than 700,000 projects.

That’s one hellava lot of infrastructure!

The report led one analyst to opine:

Lu Ting, a China economist at Bank of America’s Merrill Lynch unit, estimated that China’s total public debt stood at 53 percent of gross domestic product. Adding corporate and household obligations lifts the total debt ratio to as much as 190 percent of G.D.P., he estimated. [I have seen other estimates as high as 240%]

China’s overall debt ratio “is neither exceptionally high nor low,” Mr. Lu wrote on Monday in a research note. [Who’s Kool-aid has he been drinking?] Still, he said he was concerned that for the last two years China has been adding debt faster than its economy has been growing.

“We believe the markets and the Chinese government should be alarmed by the rapidly rising leverage, but we do not believe China is on the brink of a debt crisis, [Really?] especially if the new leaders can take decisive measures to arrest its rising leverage,” Mr. Lu wrote.

Decisive measures? Like what? … there’s no soft way out of this …

Here’s what Fitch thinks …

China’s credit quality started to deteriorate in late 2011 as borrowers took on more debt to serve their obligations amid a slowing economy and weaker income. Interest owed by borrowers rose to an estimated 12.5 percent of China’s economy from 7 percent in 2008, Fitch Ratings estimated in September. By the end of 2017, it may climb to as much as 22 percent and “ultimately overwhelm borrowers.”

… and Goldman Sachs …

The nation might face credit losses of as much as $3 trillion as defaults ensue from the expansion of the past four years, particularly by non-bank lenders such as trusts, exceeding that seen prior to other credit crises, Goldman Sachs Group Inc. estimated in August.

And finally, for some perspective, consider this …

Do you reckon this might be a debt bubble? The description bank “assets” might be a bit suspect, don’t you think?