While all eyes are turned to China's tumultuous stock markets, the real threat to China's financial well-being lies with the country's cash-strapped local governments.
Between 1998 and 2012, China's towns and villages had a revenue shortfall of 18 trillion yuan ($2.82 trillion), according to a recent paper by the International Monetary Fund. Of that fiscal gap, 13 trillion yuan was filled through land sales and another 5 trillion yuan was generated from shadow banking, namely wealth management products sold by the country's 67 provincially owned trusts, and state and private banks.
