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Adam Minter

Which Chinese City Will Become the Next Detroit?

Where is China’s Detroit? A few weeks ago, the answer to that question would have been an optimistic shortlist of towns with thriving automobile industries. But since Detroit filed for bankruptcy on July 18, the question has become this: Which Chinese city will be the poster child for the country’s growing multitrillion-dollar local-government-debt problem?

In 2010, China’s National Audit Office announced that local governments had amassed a debt of $1.73 trillion, driven largely by borrowing for construction, infrastructure and debt service. Easy credit meant to avert the worst of the global financial crisis only served to worsen the problem: Local debt will grow to $2.63 trillion by the end of the year, equal to 29 percent of gross domestic product, according to Huatai Securities Co. Ltd. A 2012 audit of 36 local governments found $624.6 billion in debt -- suggesting there are at least a few Chinese cities with debt equal to, or in excess of, the $18 billion that sunk Detroit.