China: Us, a debt problem? What debt problem?

posted at 8:11 pm on August 28, 2013 by Erika Johnsen

China has a debt problem, and whether they like it or not, it’s going to increasingly make itself felt in their economy pretty quickly here, via the WSJ:

As worries over China’s debt problem mount, the burden of paying off those loans could be the trigger that tips runaway credit into slower economic growth and financial stress. …

Nationwide, four-and-a-half years of breakneck growth in lending has significantly increased China’s debt burden. Outstanding borrowing by businesses and households rose to 170% of gross domestic product at the end of 2012 from 117% in 2008, according to data from the Bank for International Settlements. The 2012 figure for the U.S. was 157%.

Assuming interest rates of 6.9% on outstanding credit—the average in June—and repayment over the next decade, interest and principal payments on business and household debt currently absorb around a third of China’s GDP. At the end of 2007, on the eve of the financial crisis, the equivalent debt-service ratio for the U.S. was 21%, a figure that was broadly unchanged at the end of 2012, according to the BIS. …

The heavy debt load could also weigh on China’s efforts to tilt its economy away from heavy spending on infrastructure, often paid for with borrowed money, and towards a rise in consumption.

The WSJ piece has a lot of good info, and check out this useful series of visuals from the Financial Times:

China has more debt than other emerging markets.

Lucky for China, then, that they maintain such strict oversight over the media and Internet access for moments exactly like this, because keeping a lockdown on negative reports of how they’re running the country is a matter of communist-party policy. For instance, here’s an editorial from their flagship newspaper earlier this week (h/t ViaMeadia):

China is not likely to fall into a local government debt crisis as local debts were invested mainly in construction projects, according to a commentary in Monday’s People’s Daily, the flagship newspaper of the Communist Party of China.

The commentary noted that many countries hit by the debt crisis used their debts for paying civil servant salaries, pensions and other expenditures, and the money was used without producing further economic benefit.

In contrast, China’s local government debt was primarily used for construction projects, such as the construction of railways, expressways and water facilities. The debts eventually became government assets, the paper said. …

The paper thus ruled out the possibility of a local debt crisis in China.

Er… either something was lost in translation there, or that doesn’t actually make sense — and I’m leaning towards the nonsensical explanation, because that meshes pretty darn well with the Chinese regime’s strategy with just about everything that doesn’t go their way: Deny, deny, deny.


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Calling DarkCurrent…..

ladyingray on August 28, 2013 at 8:14 PM

They can always tear the corneas from their own children to sell on the organ transplant black market.

Bishop on August 28, 2013 at 8:17 PM

Lucky for China, then, that they maintain such strict oversight over the media and Internet access for moments exactly like this, because keeping a lockdown on negative reports of how they’re running the country is a matter of communist-party policy.

Sounds rather familiar to something much closer to home.

VorDaj on August 28, 2013 at 8:18 PM

Deny, deny, deny.

They watched obama and his admin., Carney too, in action for years.

What unemployment problem?

What housing?

What black unemployment and other challenges?

What, the Arab Spring is not blooming?

The scandals? All phony

Deficit? You must be a racist

Add your own.

Schadenfreude on August 28, 2013 at 8:26 PM

“You get to keep your doctor”

Obama’care’ will be cheaper

Etc.

Schadenfreude on August 28, 2013 at 8:26 PM

LOL just wait until China stops buying US debt. I should not laugh because it will more or less destroy America …but…yeah

watertown on August 28, 2013 at 8:29 PM

They can call in the USoA markers.

davidk on August 28, 2013 at 8:32 PM

LOL just wait until China stops buying US debt. I should not laugh because it will more or less destroy America …but…yeah

watertown on August 28, 2013 at 8:29 PM

QFT

WitchDoctor on August 28, 2013 at 8:32 PM

Schadenfreude on August 28, 2013 at 8:26 PM

YouTube videos lead to the rapes, mutilations, and deaths of foreign Ambassadors …

ShainS on August 28, 2013 at 8:33 PM

Deny, deny, deny.

Also sounds like the Obama administration.

GarandFan on August 28, 2013 at 8:37 PM

Sounds just like what is going on in this country. Deny, deny, deny, deny.

retiredeagle on August 28, 2013 at 8:39 PM

I could say Obama is leading China from behind but, I think it’s more like China is just leading Obama from behind.

VorDaj on August 28, 2013 at 8:41 PM

The Obama administration denies any and all denials.

VorDaj on August 28, 2013 at 8:42 PM

…Made in China?

KOOLAID2 on August 28, 2013 at 8:43 PM

I’m sorry, the Obama administration denies, denies, denies, any and all denials and if you report they said that, they will deny, deny, deny, that..

VorDaj on August 28, 2013 at 8:44 PM

China is a paper tiger that is so overrated by many in the West… All what China is at the end is a very cheap labor (more like slave labor) country where the US and other Western businesses use to produce goods to Western consumers… 90% of the Chinese live in abject poverty that we cannot even imagine here… Our poor in the US are considered upper middle class in China… Most importantly they are an evil communist oppressive and very corrupt regime where there are no free people… That is alone is guarantee to keep China a third world sh*t hole…

mnjg on August 28, 2013 at 8:48 PM

LOL just wait until China stops buying US debt. I should not laugh because it will more or less destroy America …but…yeah

watertown on August 28, 2013 at 8:29 PM

Another myth about China buying our debt… China buys little of our debt compared to what the Feds buy every month… In fact Japan has bought as much of our debt as China…

mnjg on August 28, 2013 at 8:52 PM

In contrast, China’s local government debt was primarily used for construction projects, such as the construction of railways, expressways and water facilities. The debts eventually became government assets, the paper said.

Er… either something was lost in translation there, or that doesn’t actually make sense — and I’m leaning towards the nonsensical explanation

Really? It sounds like a succinct summation of the liberal/New York Times editorial argument for more stimulus spending.

In fact, it sounds like a two-sentence summary of the Elizabeth Warren campaign.

HitNRun on August 28, 2013 at 8:55 PM

Another myth about China buying our debt… China buys little of our debt compared to what the Feds buy every month… In fact Japan has bought as much of our debt as China…

mnjg on August 28, 2013 at 8:52 PM

True.

jimver on August 28, 2013 at 9:16 PM

Calling DarkCurrent…..

ladyingray on August 28, 2013 at 8:14 PM

Please pick up the white red courtesy phone.

As for the ChiCom claims that they don’t have a local government debt crisis because they overspent on infrastructure, let’s ask Spain how well building ghost cities worked out for them.

Steve Eggleston on August 28, 2013 at 9:27 PM

I still marvel at all those ghost cities. Remarkable. China is doomed to collapse. Of course no one will be able to tell.

Bmore on August 28, 2013 at 9:33 PM

I still marvel at all those ghost cities. Remarkable. China is doomed to collapse. Of course no one will be able to tell.

Bmore on August 28, 2013 at 9:33 PM

If a Ghost City collapses and no one is there to hear it, does it make any sound?

trigon on August 28, 2013 at 11:26 PM

Maybe just a big thud in the financial markets.

trigon on August 28, 2013 at 11:27 PM

Say, ever notice that Obama’s attitude towards “transparency” mirrors the Red Chinese almost precisely?

Of course, this problem has been building for more than a decade, and many observers have noticed the many infrastructure projects built for no genuine economic reason – up to and including entire cities constructed with no population which remain ghost towns.

A centralized command economy is doomed to fatal inefficiency. The Chinese unleashed waves of capitalism at the margins, and made great progress because they were starting virtually from scratch. But the Party and People’s Army cannot continue to steal trillions from the economy quietly without consequences. Bills do eventually come due, even for China (and even for Obama, although he will be long gone by the time his arrive).

Adjoran on August 29, 2013 at 12:05 AM

I still marvel at all those ghost cities. Remarkable. China is doomed to collapse. Of course no one will be able to tell.

Bmore on August 28, 2013 at 9:33 PM

The hilarious part is that their 1-child policies made those ghost cities what they are. They have the people to build them but not to populate them.

MelonCollie on August 29, 2013 at 1:58 AM

In contrast, China’s local US government debt was primarily used for construction projects, such as the construction of railways, expressways and water facilities. The debts eventually became government assets, the paper said. …

FIFY

Patriot Vet on August 29, 2013 at 7:49 AM

China’s spending to keep up the illusion of GDP growth through borrowing is heading them into a downturn worse than our housing bubble by creating ‘ghost cities’.

I can’t wait to see it fall.

Patriot Vet on August 29, 2013 at 8:01 AM

I still marvel at all those ghost cities. Remarkable. China is doomed to collapse. Of course no one will be able to tell.

Bmore on August 28, 2013 at 9:33 PM

Marvel no more.

DarkCurrent on August 29, 2013 at 9:44 AM

The hilarious part is that their 1-child policies made those ghost cities what they are. They have the people to build them but not to populate them.

MelonCollie on August 29, 2013 at 1:58 AM

Here’s an interesting read.

Here’s another.

DarkCurrent on August 29, 2013 at 9:47 AM

China is a paper tiger that is so overrated by many in the West… All what China is at the end is a very cheap labor (more like slave labor) country where the US and other Western businesses use to produce goods to Western consumers…

mnjg on August 28, 2013 at 8:48 PM

Many higher paying jobs are now moving to or being created in China because of the greater availability of engineers as compared to the US.

DarkCurrent on August 29, 2013 at 1:16 PM

Calling DarkCurrent…..

ladyingray on August 28, 2013 at 8:14 PM

Usually Erika’s silly sinophobic rants are posted during the early hours here. I’ve heard she’s going to post actual real-time personal observations in the near future though.

I’m looking forward to those.

DarkCurrent on August 29, 2013 at 3:38 PM