A possible banking crisis in China lurks less in real estate bubbles than in the political economy of local governments.

Though I am a victim of astronomically high housing prices, I don't see an imminent danger of banks going broke for financing the real estate bubbles now wafting from big cities to secondary ones.

At a time of crazy urbanization, conspicuous consumption and lack of personal finance programs other than housing and stocks, a housing bubble across China will have a much longer life than that in the United States, where homes are no longer a scarce source of life or investment.

In other words, demand for an apartment as a place to live or a product of personal finance is less elastic in China than in the United States.

No wonder China saw a surge of housing prices in secondary cities in the first half of this year, where speculators and investors awash with cash faced much fewer restrictions than in a metropolis such as Shanghai, which now bars anyone from buying more than one new apartment.

People's Daily reported yesterday that secondary cities supplied more than half of the revenues of China's top 10 real estate firms (in terms of sales revenues) in the first half of this year.

Everyone knows there's a housing bubble, but everyone buys into it - in many cases pooling the savings of three generations. You hardly see American children nudging their parents and grandparents into a housing bubble.

Chinese banks won't face a crisis unless most Chinese stop buying into this nationwide housing bubble and holding the bag of bad loans for the banks.

Most banks are indeed confident. They said last year that they would remain in good shape even if housing prices plummeted 30 percent.

The National Bureau of Statistics revealed yesterday that big cities like Shanghai and Beijing saw mild increases in housing prices in June over the same period last year, while secondary cities witnessed sharper growth.

It's easy to infer excellent performance of Chinese banks amid a real estate bubble of Chinese characteristics.

Although they will benefit from a housing bubble for many years to come, Chinese banks stand to lose in their blind financing of local government projects, especially poorly planned highways, bridges and public plazas.

Banks financed 80 percent of the 10.7 trillion yuan (US$1.6 trillion) outstanding debt of local governments by the end of last year. More than half of that debt went to road and urban construction (other than housing). It's an open secret that many highways under construction or operation are deep in the red, threatening to become bad loans for the banks.

"On the whole, the 10.7 trillion yuan of debt seems to be no big deal, given a GDP of 40 trillion yuan in 2010," He Weigang, a Xinhua writer, said in a commentary published yesterday. "But it becomes serious if you look at some governments in the poorer central and western regions."

Nearly 20 percent of the cities and 4 percent of the counties of China have reported a debt-asset ratio of more than 100 percent, which is alarming, He said.

That piling up of public debt, as He keenly observed, results largely from local governments' crazy infrastructure construction. Here's the key question: Why could local governments get easy bank loans to finance infeasible infrastructure projects?

I venture of offer two quick answers:

On the one hand, these projects often line the private pockets of local officials (as seen in the sudden collapses of bridges lately); on the other, those local officials are simply economic idiots elected for their ability to serve renminbi (Chinese currency) instead of renmin (the people).