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Watchdog Warns of Coming China Banking Crisis
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  • Nevis07

    This piece should be edited for additional clarity. The US Government public debt load is indeed around 106% of GDP, but US consumers, corporations, and financial business also carry debt, that when added up is roughly the same amount as the total Chinese debt load cited. The 255% Chinese debt load cited above includes all four measures of debt, however, their composition of debt is different than our own.

    More precisely, the official Chinese public government debt is far less their our own (I think it’s in the 40 – 50% range), while their financial and consumer debt is still relatively small compared to developed economies such as the US. It is China’s corporations that have been expanding their debt at extreme rates over the last several years that is most worrying to economists. Of course, much of this corporate debt is effectively Chinese government debt because of the publicly owned corporations in China – hence the government is stuck with their business’ debts.

    I don’t know exactly how this will play out, but I suspect (given the top down centralized policy structure) the Chinese government will try and increase it’s own official government debt and encourage consumers to take on more debt while making corporations ability to issue more debt more difficult. In other words, they’ll try to mix up their debt composition without increasing the total amount significantly.

    Whether or not this is possible, I don’t know. Global trade growth appears to have halted and therefore, the export model of growth automatically is a shrinking pie to divide up. Additionally, given the gains in robotics and other tech sectors, jobs will be more difficult to fill while maintaining full employment. The key problem for China is that it takes increasing yuan debt to create the same amount of additional growth that it was able to generate in the past. And as the principal is understood, debt spending today, means less money and investment to spend tomorrow.

    • Kevin

      Insightful comment (and article) – thanks.

  • Jim__L

    I was under the impression that debt-to-GDP ratios in the Unites States are typically around 300%, with some of that debt being privately held debt and some of that debt being publicly held debt. Specifically during the Mortgage Meltdown, the Stimulus was supposed to save private debts from insolvency by transferring that share of the debt to the public.

    (Krugman could do nothing but complain about this; his beloved stimulus was being counteracted by stupid prudent people who used their checks from the government to pay off their credit cards rather than spend spend spend. It’s such a pity that the hoi polloi doesn’t do exactly as Krugman wants. I think the hoi polloi should put him out of his misery, to be honest.)

    So, without an idea of what privately held debt is in China, I can’t evaluate this article. If that 255% number is private and public debt combined, China’s actually doing pretty well for itself.

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