Reuters reports: When China announced a nearly $600 billion package to ward off the 2008 global financial crisis, city planners across the country happily embarked on a frenzy of infrastructure projects, some of them of arguable need.
Chengdu, the capital of southwestern Sichuan province, answered the call for stimulus action with a bold plan for a railway hub modeled after Waterloo railway station in London.
Except London’s Waterloo was not ambitious enough.
“I was shocked when I finally got to visit Waterloo. It was so small,” said Chen Jun, a director at Chengdu Communications Investment Group, which built the new Chinese terminal. “I realized we would probably need a station a few times bigger to meet the demands of our city.”
In a manner typical of many infrastructure projects in China, Chengdu more than doubled the size of its planned transport hub, borrowed 3 billion yuan ($473 million) from a state bank to finance it, then set out on a blistering construction timeline that saw the finishing touches put on the project two years later.
But instead of getting the accolades they expected for helping to stimulate the economy, Chengdu Communications and many of China’s 10,000 local government financing vehicles (LGFV) have now come under a harsh spotlight for the grim side-effects of the construction binge.
China’s local governments have piled up a mountain of bad debt, some of it to finance bridges to nowhere and other white elephant projects, which now threatens to constrict growth at a time when the global economy is sputtering. It is adding to other systemic risks in China, including a sharp downturn in the property market and a rapid rise in problematic loans.