Chinese public debt: Coming clean. China faces up to the hidden debts of its local governments. BANKS in Western countries dragged their economies into the great recession. Banks in China pulled the country out of it. Much of the Chinese government's stimulus effort from 2008 to 2010 was left to financial institutions, which proved better at shoving money out of the door than America's federal government. The banks lent tothousands of investment corporations set up by local governments, which can not borrow in their own name. With the help of some initial capital and collateral, like land, these investment vehicles directed the lending into local bridges, tunnels and real estate ventures. But many of the loans have turned bad, threatening the balance sheets of the banks that made them. Now the central government has at last resolved to clean up the mess, according to unname dofficials cited by Reuters this week. China's government will consolidate thousands of investment vehicles and hive off some of their debts into separate companies open to private investors. It will force the banks to write off another slice of the bad debt, and repay a chunk of it from its own budget. Much of the stimulus lending of 2008-10 may turn out to be public spending after all. The government has never revealed how much debt the local government vehicles took on.