
China's Subprime Crisis Is Here - RaSoJo
http://www.bloomberg.com/gadfly/articles/2016-02-17/china-s-600-billion-subprime-crisis-is-already-here
======
jcoffland
The American media seems to jump at any opportunity to dismiss China as an
economic threat. It makes us feel more secure but leads to a public informed
only about one side of China's story. Namely the part our ego can handle.
China has regularly surpassed the US in number of cars sold since 2009. China
also holds more US debt than any other country. Another way to put that is the
US government owes China over 1 trillion USD. This, I believe, is the real
reason the American media trips over themselves to write stories that sooth
away the nagging fear that China is, or even already has surpassed us
economically.

Edit: more interesting facts.

\- China's percent GDP growth is more than twice that of the US. (7.4% vs 2.4%
in 2015)

\- China's government has $3.9T in cash reserves vs the US' $434B.

\- China has twice as many children enrolled in primary and secondary school
and 50% more undergrads than the US.

We can only say but, but, but for so long.

~~~
rosser
China can do things at a scale the West in general, and the US in particular
can't even fathom.

I was in Tibet with some friends in October. At one point, our tour bus was
detoured, because the bridge on our scheduled route wasn't big enough for it,
so we drove a couple hours out of our way, and just happened to pass a 10MW
solar plant. In the middle of Nowhere, Tibet. A thing we wouldn't even have
seen if we hadn't had to detour down a dirt track road, still under
construction (to the point that we had to stop and wait for the equipment that
was carving the road bed out of the mountain face to clear enough room for our
bus to pass). Who knows how many other such hidden infrastructure gems there
are, down other roads that tourists don't get permission to use?

Later, we passed a seemingly endless convoy of dozens of fuel tankers and
flatbeds loaded with construction equipment — all military green — headed
south, as we were returning to Lhasa from Mt. Everest base camp. Doing some
digging, it turns out this materiel was all accumulating at the Nepalese
border.

See, just a week or two previously, Nepal had passed its new constitution,
which favored closer ties with China over India. India, used to being Nepal's
big brother and pushing it around, subsequently closed their border with Nepal
— the border which, by treaty, was the only route through which Nepal could
import fuel. Consequently, Nepal was starting to experience a ridiculous fuel
shortage. (Talking with a taxi driver in Kathmandu a few days after having
seen this convoy, the petrol rationing was down to 7L per family per week. Our
flight from Kathmandu to Lhasa — about a 90 minute flight, going the long way,
so people could get a view of Everest — was on an Air China A340, because they
needed to send a plane that could carry enough fuel for the round trip, as
there wasn't enough Jet A at KTM for the return.)

These convoys of fuel and construction equipment were waiting for a new treaty
to be signed between Nepal and China, allowing emergency fuel imports from
China. The purpose for all the construction equipment? The Nepalese side of
the road that runs from Kathmandu to Lhasa was still destroyed from the Gorkha
earthquake. The estimates I was reading suggested that, once the border was
opened, the Chinese would be able to rebuild the road from the border to
Kathmandu in about three days, and have fuel continually running down the
repaired road as long as Nepal needed it.

China just happened to have the materiel on hand, _in Tibet_ , to respond
within _days_ of India closing the border and Nepal going into crisis, with
sufficient manpower, equipment, and fuel to rebuild a hundred-odd kilometers
of mountain road in a few days and keep a city of a million people, and who
knows how much of the rest of Nepal, from collapsing.

But they're completely backwards and corrupt, and have no idea what they're
doing.

~~~
oliwarner
That's a neighbour so there's an obvious local power advantage. It's not
unimpressive though and I completely agree about there being a scale and
general surplus of engineering prowess that the rest of us just can't
comprehend.

What is perhaps more alarming is their development of Africa. I passed through
a few African countries last year and China was _everywhere_. They're in the
up-and-coming metropolises like Addis Ababa, they're in despot states like
Zimbabwe and they own vast numbers of resource mines in places like Zambia
(copper) and Namibia (uranium).

Now almost _every_ sub-Saharan African country has Chinese mining activity.

And the story is the same in all these places. China promises roads and power
stations for mining rights, then they do _all_ the work. They ship everything
over, including workers. If there is any untrained scrot work for locals, they
get paid a tiny fraction of what a Chinese worker would —let that sink in— but
anything else is Chinese. There's no local training, no real number of local
jobs.

They're investing hundreds of millions in exchange for the infrastructure
_they use_ to strip-mine a country.

While we're all fretting about how much cash China has, they have built a
resource network that covers half the planet. They have millions of engineers
and ton of resources and the political power (the debts of every other major
power) to get away with nearly anything.

~~~
saiya-jin
well, and now let's look what their "competitor" (west) have done during those
hundreds of years of presence there...

Yes Chinese are not saints but pure capitalists, I see no evil in their
actions. On the other hand, white man's actions there were evil on quite a few
occasions

~~~
puranjay
What's more evil: China following unethical economic practices to lift
hundreds of millions out of poverty, or China following the rule book and
letting hundreds of millions languish in poverty?

From where I stand, China NOT being pure capitalists for the good of their
citizens is more evil.

It's well and good when a developed country talks about ethics and capitalism
- they have the luxury to. But when a country where millions live in
humiliating poverty, don't have enough to eat, and have no hope for the
future, it would be far more evil to follow the book and let down these
millions.

~~~
vkou
What kind of poverty is going to be left after the investments are done and
the resources are extracted?

Should the people living there leave, like they are leaving Alberta and North
Dakota now? Is your country going to take them?

------
obblekk
This doesn't seem like a particularly compelling argument. Bad loan volumes
have risen, but not above historical highs.

As a percentage of total debt, the article says bad debt is at 1.67%. This is
up 51% from 1.25% in the last year. Considering the amount of margin that's
been wiped out as a result of the stock bubble popping, this doesn't seem
terrible. In addition, it doesn't seem like this rate is accelerating (since
2009), but linearly increasing.

Maybe Chinese banks are consistently increasing the amount of debt they issue
and the risk they take per unit debt as a rational response to increasing
productivity of Chinese businesses. This implies a greater amount of leverage
for the Chinese economy, but not necessarily extreme irrationality.

Maybe there's something here (I actually think there are structural problems
in the Chinese economy) but this article does not make a compelling case.

~~~
dh997
Isn't the bigger issues China's structural draconian limits to freer movement
of capital, external investment, the imaginary/real value of ghost cities and
scale of holding illiquid foreign debt?

~~~
obblekk
One by one:

1\. Freer movement of capital. This is a false herring in my opinion.
Virtually no countries outside the US/EU offer completely free movement of
money. The thing that matters is whether this prevents foreign capital
investment (because people are scared of not being able to get their money
back). In China, I don't think it does based on the last few decades of
foreign investment.

2\. External investment. As above, I don't think people are discouraged by the
rules. Yes, you have to make a 50% joint venture, bribe government officials,
share technology, have no copyright/IP protection, and risk your partner
entering the market as a competitor once they learn your business (see Asus).
But, you can still make so much money that it's probably worth it (or so
American corporations seem to believe).

3\. Ghost cities. I don't know much about this one honestly. I've been hearing
about this since 2009, but consider that China is increasing their
urbanization rate by 1 percentage point per year (~10M people/yr). If I were
asked to manage that as a central planner, having excess inventory of housing
would be critical to prevent slowdowns and allowing for some burstiness. Yeah,
there's probably ghost cities, but how long do they remain before becoming
occupied. Are the same cities hanging around forever (and people complaining
about them forever), or is it new stock every year?

4\. Illiquid foreign debt. Most of China's debt is in two categories: 1)
Popular debt (US/EU) or 2) strategically important countries. For (1), there's
likely some market. You're right that they can't sell too much, but they've
already notified the world that they will begin selling their holdings over
the next decade and since central banks in the western world are trying to
increase the reserve interest rate there should be people willing to buy this
stuff (or the government can buy it and reissue at a higher interest rate to
make people want it). For (2), don't think of it as debt, but operating
expense, never to be recovered.

~~~
tyre
A few counterpoints.

From your original comment

> In addition, it doesn't seem like this rate is accelerating (since 2009),
> but linearly increasing.

That is the overall percentage of bad debt increasing linearly, meaning
accumulation of bad debt is accelerating faster than growth of "good" debt.
This was also the case in the US mortgage crisis.

From this comment

1) It would be less of a concern if China had less liquidity while Chinese
companies were also getting less access to liquidity. Shadow lending from
wealth management product (WMPs) is a massive structural issue for the Chinese
economy. When the underlying assets fail, you have a recession. It also means
a centralized economy with lots of the downsides (bribes, joint ventures,
etc.) but without the control.

2) American corporations _believe_ there is tons of money to be made, but not
many have been successful. In the event of a Chinese recession, those
experiments will be vastly drawn back when Chinese consumers become
pessimistic. In the event of an American correction, they'll pull back to
invest in proven markets.

3) I haven't seen evidence that these ghost cities are the result of central
planners building slack for expected growth.

4) Internal private debt (see 1) is a much larger problem. Most of that is
owned by the central government, which means either a bailout when companies
fail, continued lending until a bailout, or letting their economy correct.

~~~
obblekk
Linearly increasing: True. I misread the axis. It still doesn't seem to have
the form of something in a bubble or clearly unsustainable.

1\. That's a fair point. But I suspect this has more to do with less developed
capital markets in China than systematic weakness. I wonder if local supply of
capital will be able to step up in the next American recession.

2\. I think many have been successful in lowering their manufacturing costs.
Not sure how an American correction would affect the Chinese economy.

3\. Fair.

4\. I'm generally skeptical of this argument. US corporations and households
have maintained a high level of debt for more than 50 years without
significant effect. I guess the Federal gov hasn't been the holder of that
debt, but it actually seems better that way because they have the ability to
print cash and add a stabilizing effect.

I guess my point is that none of these individually seem extreme enough to
cause a problem. Maybe in aggregate there could be a storm.

~~~
tyre
Interesting point on (1). I wonder if that could trigger relaxed repatriation
taxes for corporations in the US. Bringing a few hundred billion home would be
great in a liquidity crisis.

I wasn't thinking of (2) that way, but in that case you're right that
southeast asian competition is a bigger factor. If cheap manufacturing leaves,
China would need to shift to consumer growth, which American companies thus
far haven't really cracked (except Apple to an underwhelming degree.)

An interesting aside on (2) would be if a trade-protectionist president is
elected in the US. This would re-prioritize from cheap manufacturing overseas
to better jobs at home—triggering or accelerating what you were talking about.
The New Yorker had a great piece today on how both Sanders and Trump are of
that mindset.[1]

(4) might be a case of six in one hand, half dozen in the other. Turned out
that the US government _did_ (indirectly) hold all that mortgage debt when it
bailed out the banks. That said, it looks better externally to institute QE to
bailout companies who backed bad debt than to print money to pay off your own
debt.

Either way, I'm not sure we are or aren't at a crisis yet, but they also
haven't fixed some basic structural problems.

[1] [http://www.newyorker.com/magazine/2016/02/22/trump-
sanders-a...](http://www.newyorker.com/magazine/2016/02/22/trump-sanders-and-
the-american-worker)

------
JumpCrisscross
There's a conjecture, in economics, that out of a fixed exchange rates, free
capital flows and a sovereign monetary policy, a country can only pick two.
This is known as the Impossible Trinity [1].

The United States plays strategy b, relinquishing a fixed exchange rate.
Greece plays a, trading away its monetary-policy sovereignty within the
eurozone.

China is trying to move from c (ex free capital flows) to b (ex fixed exchange
rates). In the process, it's caught in the Impossible Trinity. Either
coördinated decisiveness or some combination of a currency and/or capital-
outflow will force them into a stable configuration.

[1]
[https://en.m.wikipedia.org/wiki/Impossible_trinity](https://en.m.wikipedia.org/wiki/Impossible_trinity)

------
sharetea
This article is good, but it underscores how fast and catastrophic China's
collapse is.

\- China's total debt risen to 346% of GDP in 2015.
[http://seekingalpha.com/article/3852886-chinese-debt-
problem...](http://seekingalpha.com/article/3852886-chinese-debt-problem-stay)

\- China exports fall 11.2% in January, imports down 18.8%
[http://www.cnbc.com/2016/02/14/china-releases-trade-data-
for...](http://www.cnbc.com/2016/02/14/china-releases-trade-data-for-january-
yuan-denominated-and-us-dollar-imports-and-exports.html)

\- China’s $6.7 trillion bond market is flashing the same danger signs that
triggered a tumble in stocks [http://www.thestar.com.my/business/business-
news/2015/10/10/...](http://www.thestar.com.my/business/business-
news/2015/10/10/if-you-think-chinas-equity-bubble-is-scary-check-out-
bonds/?style=biz)

\- China Capital Outflows Rise to Estimated $1 Trillion in 2015
[http://www.bloomberg.com/news/articles/2016-01-25/china-
capi...](http://www.bloomberg.com/news/articles/2016-01-25/china-capital-
outflows-climb-to-estimated-1-trillion-in-2015)

\- China's Net Capital Outflows Probably Hit $113 Billion In January
[http://www.actionforex.com/analysis/daily-forex-
fundamentals...](http://www.actionforex.com/analysis/daily-forex-
fundamentals/china's-net-capital-outflows-probably-hit-$113-billion-in-
january:-iif-20160210257745/)

\- "Chinese banks will lose approximately $3.5 trillion of equity if China's
banking system loses 10 percent of assets" (all of its reserve would be gone)
[http://www.cnbc.com/2016/02/10/kyle-bass-china-banks-may-
los...](http://www.cnbc.com/2016/02/10/kyle-bass-china-banks-may-lose-5-times-
us-banks-subprime-losses-in-credit-crisis.html)

------
hgh
Michael Pettis is one my favourite China commentators, with a big focus on the
shifts necessary in the balance sheet and composition of growth, and whether
that can be done smoothly or necessarily through some catastrophe. Not to
mention a broader view of the political economy of the change.

Here's a recent post he did that's worth a read (at least through the nine
point summary): [http://blog.mpettis.com/2016/01/will-chinas-new-supply-
side-...](http://blog.mpettis.com/2016/01/will-chinas-new-supply-side-reforms-
help-china/)

~~~
welanes
Pettis is the man. Essential reading for understanding China's economy.

------
yueq
The root cause of 08 financial crisis is not simply 'subprime loans' that
can't be repaid. It's because of trillions of derivatives that those banks
hold, and lack of liquidity when banks are making wrong bet.

China doesn't have many complex financial engineerings as US did in 07/08.

~~~
slantedview
It was broader than subprime and derivatives even. It was a general real
estate (housing) bubble. Home prices became massively inflated and the various
investments tied to housing came crashing down. A similar result can be
expected in China when the music eventually stops.

~~~
yueq
When price go up it doesn't mean a it's a bubble.

Getting loans is way harder/regulated in China than 06/07 US. Currently 25+%
down payment or 70% for 2nd home is required. -- Comparing in 2007 banks only
asks for 3% down.

~~~
viblo
China have aggressively lowered the requirements the last years. At the moment
it should be 20% for first and 30% for 2nd home. Still some way to go for US
levels ofc.

www.mingtiandi.com/real-estate/china-real-estate-research-policy/china-
lowered-downpayments-but-will-it-help-sell-homes-in-the-hinterland/

------
melted
FWIW, George Friedman (of STRATFOR) predicted this, except he believed the
implosion of China would be on a truly catastrophic scale. So they could still
be at the edge of a much deeper hole.

See: The Next 100 Years: A Forecast for the 21st Century
[https://www.amazon.com/dp/0767923057](https://www.amazon.com/dp/0767923057)

~~~
jqm
He also predicted Mexico and Poland would become world powers soon. Although
there are some interesting insights, I take his predictions with a whole
shaker of salt.

~~~
melted
Not really "soon" — more like towards the middle of the century for Poland,
and end of the century for Mexico. I'm curious about his predictions on Russia
and Turkey in particular.

------
zcbenz
If you keep saying China has economic crisis, finally you are gonna be right
some day.

~~~
seanmcdirmid
There should have been a crisis a few years ago but the government has chosen
to keep the bubbles from popping. $1 million for a 90 sqm apartment in Beijing
that rents form $1500/month is pretty frothy.

But the CPC repealed the law of gravity, so it doesn't apply to the Chinese
economy. Maybe it's really different this time. But probably not. The only
question now: will they inflate the currency turning all those savers into
losers, or reign in credit and bad debts, choking the economy and growth. They
won't be able to just hide behind growth now.

------
narrator
Ahhh the old' China crisis again! The dog that didn't bark. The Charlie Brown
football that never got kicked. The constant and unending crisis that is on
its way any day now.

As I have explained over the years in many previous comments, China's banking
system is partially privatized central planning, the government prints it's
own money. Thus, when there is a credit crisis the government just
recapitalizes the banks with freshly printed Yuan and sells off the bad loans
at a discount. Bankers who behaved badly get executed or disappeared and the
whole thing starts over.

Don't believe me? Let's take a trip down memory lane on HN:

China: Crisis Gauge Rises to Record High 2 points Cless __2 years ago __0
comments ([http://www.bloomberg.com/news/2014-02-26/crisis-gauge-
rises-...](http://www.bloomberg.com/news/2014-02-26/crisis-gauge-rises-to-
record-high-as-swaps-avoided.html))

China Interbank Rates at Record High (think Lehman Bros.) 1 points teawithcarl
__3 years ago __0 comments ([http://m.theepochtimes.com/n3/118747-china-
banking-crisis-in...](http://m.theepochtimes.com/n3/118747-china-banking-
crisis-interbank-rates-at-record/))

China's Brewing Crisis Is a Thousand Times Greece's 8 points ytNumbers __6
months ago __4 comments
([http://www.forbes.com/sites/panosmourdoukoutas/2015/08/25/ch...](http://www.forbes.com/sites/panosmourdoukoutas/2015/08/25/chinas-
brewing-crisis-is-a-thousand-times-greeces/))

Skyscraper index points to elevated risk of financial crisis in China, India 2
points cs702 __4 years ago __0 comments
([http://www.scribd.com/doc/78470886/Index-Bubble-
Building-100...](http://www.scribd.com/doc/78470886/Index-Bubble-
Building-100112-2-1-14300620))

China fears bond crisis as it slams quantitative easing 1 points chaostheory
__7 years ago __0 comments
([http://www.telegraph.co.uk/finance/newsbysector/banksandfina...](http://www.telegraph.co.uk/finance/newsbysector/banksandfinance/5286832/China-
fears-bond-crisis-as-it-slams-quantitative-easing.html))

China hit hardest by US Downgrade 2 points ca136 __5 years ago __0 comments
([http://gulfnews.com/opinions/editorials/us-crisis-hits-
china...](http://gulfnews.com/opinions/editorials/us-crisis-hits-china-
hardest-1.848525))

China’s Coming Economic Crisis? 3 points kercker __2 years ago __0 comments
([http://www.nytimes.com/roomfordebate/2014/04/08/chinas-
comin...](http://www.nytimes.com/roomfordebate/2014/04/08/chinas-coming-
economic-crisis?hp&rref=opinion))

Why China Will Have an Economic Crisis 1 points eande __4 years ago __0
comments ([http://business.time.com/2012/02/27/why-china-will-have-
an-e...](http://business.time.com/2012/02/27/why-china-will-have-an-economic-
crisis/?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+time%2Fbusiness+%28TIME%3A+Top+Business+Stories%29))

Confidence of China VCs drops to new low 2 points ilamont __7 years ago __0
comments ([http://www.thestandard.com/news/2008/10/29/global-
economic-c...](http://www.thestandard.com/news/2008/10/29/global-economic-
crisis-drives-china-vc-confidence-new-low))

~~~
hackuser
> the government prints it's own money. Thus, when there is a credit crisis
> the government just recapitalizes the banks with freshly printed Yuan and
> sells off the bad loans at a discount.

This has been tried by many governments and has a well-established track
record as a disasterous solution. I believe the following is a well-
established consensus in economics (though I may misremember some details):

Printing money on this scale doesn't add wealth to the economy, it just vastly
increases the number of yuan available to buy each unit of actual value,
increasing prices. For example, if you were in a universe of 10 people with
$50 each in currency, and one day that increased to $500 each, you wouldn't be
any wealthier: You couldn't buy any more; the numbers on the price tags would
merely increase by a factor of 10 - inflation.

It creates high inflation, even hyperinflation, which has further consequences
for savings (whose value is greatly reduced as prices shoot up - your $10,000
no longer can buy anything), receivables (which lose their value just like
savings), people on fixed incomes (your pension's value drops just like
savings), investment (what good is an investment that loses value quickly just
from inflation?), interest rates, exchange rates, and international trade
(when your currency is worthless, and is expected to lose more value tomorrow,
few will take it as payment for anything).

~~~
ww520
Inflation doesn't happen here. Bad debts actually take money out of the
system. Recapitalizing the banks just add back the destroyed money.

Modern monetary policies don't "print" money anymore. Debt creation and
destruction are used as the primary mean to create and destroy money. Below is
a very simplified version of money creation, skipping many other aspects.

The banks lend their deposit out to the public and money is created out of the
thin air and starts to circulate in the system. The banks are regulated by the
central bank to maintain a certain reserve ratio on the deposit so there is a
maximum level that can be lent out and that becomes the limit on the money
supply. When loans are paid back, the money is destroyed but the returned
money can be lent out again thus the money supply is not changed.

Central banks can influence the money supply by setting the interest rate.
Lowering rate causes more loans to be made thus expanding the money supply,
conversely for raising rate.

Now when a loan has gone bad, there is no money paid back to the bank. The
bank is short of that amount of money. It still has to maintain the reserve
ratio and can't lend that much out again. The money is gone; essentially it
has been destroyed from the system.

So a bad loan actually shrinks the money in circulation, lowering the money
supply. Too many bad loans would cause a credit crunch - the banks simply
can't get the loan money back to re-lend them out and thus there's not enough
money to go around.

Here's where the central banks step in. They recapitalize the banks (fancy
word to create money out of the thin air), by either giving created money to
the banks to write off the bad loans, or in the U.S. case in 2008 the Fed
buying the bad debts from the banks with new money it created out of the thin
air. In either case the banks get money for getting rid off the bad debts and
can lend again, re-balancing the money taken out of the system due to bad
debts. Thus the money supply is back to normal and life goes on.

The bad debts held by the central banks are simply some numbers on some
papers, whose value are questionable. Someday it might be decided that they
are worthless and, puff, they are gone.

The Chinese central bank is basically using the same mechanisms to deal with
bad debts.

~~~
narrator
Bravo, someone who gets it. The subtle difference with China is when the
bailout happens, the government doesn't go into debt to do it and stick the
taxpayer with the eventual interest bearing burden of the bailout. Instead,
they print the money. This creates moral hazard. I think China's political
system is better at dealing with banker moral hazard than ours is
unfortunately.

~~~
ww520
Well, their bankers making the bad loans and the people failed to repay the
loans might go the jail or got executed when illegal lending involved. Here
bonuses are reduced.

~~~
altcognito
I was just about to say, your OP was a great quick summary, but glossed over
the loss of risk/punishment inherent in the system. Consider the loophole
closed.

------
greggarious
Assuming this headline is correct, what effects would that have on the global
economy?

~~~
ktRolster
Probably small. China's financial system isn't entwined with the US/European
system as much (the Fed buys bonds from the ECB, and vice versa). Commodities
will be hit the hardest, because China will stop importing them.

Alan S Blinder estimated that a very severe recession in China would affect
the US GDP by .2% So that kind of gives you an idea.

~~~
jcoffland
China holds more US treasury bonds than any other country. How are we not
intertwined?

~~~
ktRolster
The US holds _vastly_ more US treasury bonds than any other country. But look
at the data:
[http://ticdata.treasury.gov/Publish/mfh.txt](http://ticdata.treasury.gov/Publish/mfh.txt)

China holds about the same amount as Japan, and if you count Europe as a
region, then Europe holds more than either of them.

Furthermore it doesn't really matter: it's not like they can 'call the debt.'
China has to wait for their bonds to mature just like everyone else. Really
it's rather nice of China to loan us the money.

~~~
jcoffland
You're right it doesn't matter that China has loaned us tons of money. You can
talk your way around it and Wall Street and the American media outlets have
done this for years but it does not change the facts. China continues to grow
as an economic threat to the US and we don't want to believe it.

~~~
ktRolster
What exactly is an "economic threat?"

------
maolt
Having lived in Beijing for 3 years, I try to pay more attention to the
country's "hidden" or at least somewhat non obvious debts.

The Chinese soil is dying or dead.

The population as a whole and the younger generations in particular are facing
future health issues of cataclysmic proportions.

The pace at which the country moves is sure to leave dozen of millions of
people in the dust. Those already left in the dust endure, because their
living conditions are better than those of their parents. Yet their kids'
might not be, and they will choose to endure or not (and vent in a way they
think appropriate). That, added to the dearth of females, and the Confucianist
view of a man's place in society are already proving explosive.

China has a lot of potential, but it also faces challenges of epic
proportions. To me, the economic problems are more a symptom of the problem
rather than the problem to worry about.

------
jorgecurio
Everytime a piece about china is posted the comments are quickly the same in
tone, "oh but China already surpassed US" uh no it fucking didn't not even
close. Especially when the Chinese minister admitted China's GDP is complete
fiction. Nobody in China even knows the score because it's super tough with
all the corruption to get anything done with accuracy.

It's like there's no room for a China that is _fallible_. China is perfect the
all knowing all seeing for these crowd. China is the future they claim.

Not with that ugly ass communist nanny state system suppressing free speech
and censoring media you don't.

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einar2812
Is it right that China owns a lot of its own debt AND a lot of US debt as
well? And also heard that China supposedly has the largest gold reserves in
the world, dwarfing any other country in comparison. Could that count for
something?

~~~
foxhedgehog
They would probably have to spend at least a good chunk their dollar reserves
in order to manage a truly catastrophic currency decline.

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dharma1
At some point, some percentage of those loans will default.

Financially China can handle it, though when those loans default, the chain of
events will also have some global consequences.

The question is, when the loans do default, and with it some effects to the
real economy/people, what happens to the public perception of the government
in China? There is a good chance of social unrest

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foxhedgehog
One factor not discussed in this article is the demographic headwinds that
China is heading into. Their one child policy is only now resulting in greatly
distorted working age ratios, which means that their non-working elderly
population is increasing faster than the population of workers to support
them. With a safety net in place that relies heavily on existing familial
structures rather than government programs, there are reasons to be concerned
about declining aggregate demand over the next several years, precisely as
China is trying hardest to transition from export-led growth to a larger,
domestically-focused economy.

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tim333
China's situation is a bit different to the US's in that given it's socialist
leanings it will probably just keep lending and bailing out.

~~~
themagician
How is that different from the US situation? Isn't that exactly the US
situation?

~~~
tyre
Yes, basically. Home owners were given mortgages they couldn't afford except
under beyond-ideal circumstances. They then would refinance and take out other
mortgages, until the whole house of cards came down.

The Saudis could maybe handle a situation like this, given their natural
resources. As the current price of oil has shown, however, being rich in
natural resources has its own issues.

The same principles apply across China, Saudi Arabia, and startups: at a
certain point, you have to make money.

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gesman
I think mr. Madoff need to be let out of jail to educate Chinese government.

