Now, with just 10 days left before the end of the fiscal year, local governments are in a rush to 'use it or lose it' and show that they have begun projects worth about two trillion yuan so that they can lay their claims on the funding.

That headlong rush was a recipe for waste in a country where the performance of local governments was gauged on the scale of new assets they had built, not the quality of the assets or the efficiency with which the funds were spent, said Frank Mizuno, a founding partner at business consultancy LMM Consultants.

Aggravating the problem was that Chinese banks were measured on how much they lent to infrastructure projects, not whether they made good loans, he added.

'There's a big driver in the Chinese economic system. It is asset-based. When you read information on Chinese companies, the first and easiest number to find is usually assets, like gross asset value,' Mizuno said.

By contrast, the profiles of United States or Hong Kong companies will focus on such things as market value, turnover and profits.

'There is no question China needs infrastructure. There is also no question that projects are overdone,' said Mizuno.

'A lot of these showcase projects clearly have problems. The question is, is there something systemic going on?'

A foreign venture capitalist who is a long-time investor in China endorsed these views and said he had seen many examples of wasteful expenditure during his recent travels through the country.

'In the past six months, I have travelled extensively to many rural or peripheral areas in China and saw giant local Communist Party offices and highways to nowhere,' he said.

'Infrastructure investments with no economic outcome are a waste of money and I venture to say the majority of that in China is turning gold into base metal.'

Infrastructure spending in China received a boost with the four trillion yuan stimulus launched by the central government to tackle the global financial crisis late last year, of which 1.5 trillion yuan was earmarked for infrastructure.

Lim Juay Peow, a founding partner of LMM, said he had also seen waste and mismanagement on the mainland, citing the example of a quarry project for which LMM was engaged.

'They told us they didn't have enough capacity, but when we looked at the quarry, we found that the problem was down to productivity since the equipment was down 30 per cent of the time,' Lim said.

'They were thinking of putting in US$3 million to increase capacity by 30 per cent. Instead, we trained the people to maintain the equipment properly, and they gained 30 per cent without putting in the US$3 million.'

Visits to steel mills offered similar insights, he added.

'They work the machines without maintaining them until they break down. Then it takes a long time to get spare parts, sometimes months. But maintenance is not encouraged.'

Mizuno likened the wastage in projects in China to the US subprime mortgage crisis.

In the case of that crisis, housing loans had been processed, packaged and distributed to investors. Along this chain, various parties took their fees.

'All these parties took their fees, yet the assets were often worth nothing and there was no incentive to make them worth something, because you passed it on,' Mizuno said. 'In China, you have a system very much like the US subprime system, where a lot of people have the incentive to spend a lot of money on big projects.

'The consequence is, efficiency gets dissipated. Nobody bears the consequences if the train runs slow or the factory doesn't work well. Like in the US, there are no consequences for many parties.'

A study by Tsinghua University estimated 13 per cent of China's gross domestic product was lost to corruption and fraud, compared with 4 per cent in the US, estimated by the US Association of Certified Fraud Examiners.

'Taking those figures, that is a huge difference,' said Chamorro.