
How China accumulated $28T in debt - sharetea
http://www.businessinsider.com/china-debt-to-gdp-statistics-2016-1?r=UK&IR=T
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ChuckMcM
This is an older article from the beginning the the month as China was really
struggling with its stock market. As others have pointed out, debt, in itself,
isn't really an "issue" so much as it is money from the future being brought
into the present. And when the future has a lot more money than the present
does, sending that money into the past isn't a drag on the economy. But when
the economy is about the same size in the future as it is now, then that
future economy is going to have to figure out how to operate without all that
moeny it sent to the past.

For the government debt it isn't a huge issue because the Government can
essentially decide not to pay itself back. But for public debt it means that
the economy is held back. Imagine if the trillions of dollars corporations in
the US are currently holding in "cash" was all going to paying off previous
bond holders. That money would not be available for acquisitions or new
investment. So those companies would grow slowly or not at all.

~~~
thwarted
_For the government debt it isn 't a huge issue because the Government can
essentially decide not to pay itself back. But for public debt it means that
the economy is held back._

"Public debt" is another name for "Government debt"[0]. From the rest of your
description, you means "debt owed by the non-government public", private debt,
or "household debt" (which doesn't strictly include corporate debt like your
example outlines).

[0]
[https://en.wikipedia.org/wiki/Government_debt](https://en.wikipedia.org/wiki/Government_debt)

~~~
ChuckMcM
Absolutely, I'd edit the post but rather that acknowledge the gaff here. Debt
the government owes to itself it has a number of ways to manage, debt between
private entities is a much harder thing to fix without tanking the economy.
The canonical example these days is the subprime mortgage crisis.

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static_noise
Debt is a contract. Important questions here:

* Who owes to whom?

* In what currency?

* How could it be enforced?

If China is in debt to China in Chinese currency the Chinese state has very
good leverage to handle the situation. It could even make the debt disappear.

~~~
jordanb
The debt is substantially owed by local Chinese governments, SOEs and
developers to Chinese banks.

The central government could:

1) Transfer the debt to itself (a bailout) this leaves the central government
with a very high (although sustainable) debt load but doesn't address any of
the underlying problems.

2) Inflate the debt away. This doesn't address any of the underlying problems
but it also impoverishes a lot of people who thought they were doing well. It
also increases capital flight pressure.

3) "Stress test" the banks, requiring loans in arrears be paid, bad loans be
written off, stopping the process of sending good money after bad. This is the
only move that address the underlying problems, but it means the banks
collapse (because they're already insolvent), the SOEs go bust, plus the
problem of insolvent local governments would have to be addressed; people lose
their old age pensions, massive unemployment. Plus most of the PRC's members
wealth is in SOEs so this will affect them personally. Also the government
will have to recapitalize the banks if it wants a financial sector at all (see
option 2).

4) Claiming to do 3 while actually doing a combination of 1 and 2. This is
probably what they will do and if they succeed, at the end of the day, the can
will be a little further down the road.

~~~
rwmj
I think you missed:

5) Do nothing about the problem while attempting to hide as much as possible,
silencing any whistle-blowers or sources of accurate information.

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lukewrites
Here's my anecdote about taxes and finance in China after spending ~5 years
working there.

I have a number of friends there who are entrepreneurs/small business owners
in China. Over the past few years, they have regularly been "asked" by local
government to pre-pay the current year's taxes. One friend has now pre-paid
three years' worth of tax after successive approaches by tax authorities. (The
conversation went like this: "We need you to pre-pay this year's taxes." "But
I already did." "Then you can pre-pay for the coming year.")

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blisterpeanuts
Damn. I didn't realize their debt was that high.

Interestingly, the U.S. outlook is brighter today than China's, in contrast
with a mere couple of years ago when China looked destined to be the dominant
economy.

There are a couple of reasons why. The U.S. has enormous energy reserves and
will in the long run emerge as the major energy exporter in the world, helping
reverse the perennial balance of trade deficit to a surplus, potentially $500
billion to a trillion annually.

Also, Chinese wages are rising even as manufacturing technologies such as 3-D
printing and other software-driven approaches are helping bring factories back
to the West. The Chinese model of cheap outsourcing is just about tapped out
or will be in the next ten years.

~~~
ktRolster
"Interestingly, the U.S. outlook is brighter today than China's, in contrast
with a mere couple of years ago when China looked destined to be the dominant
economy."

A lot of it is news hype. Disaster sells stories, a "2% decrease in growth"
doesn't. The US wasn't doing badly a few years ago, and China isn't doing all
that badly now.

Something to remember when the hype and stories come up in the next few years.
We'll all muddle through, just like we always do.

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danielvf
TLDR: China has moved from a 170% debt to GDP ratio to a 236% ratio in six
years.

For comparison, the US is at a debt to GDP ratio of 270+%.

~~~
vkou
You're comparing public + private Chinese debt with public US debt.

The public + private US debt/gdp ratio is ~270%.

[https://en.wikipedia.org/wiki/Financial_position_of_the_Unit...](https://en.wikipedia.org/wiki/Financial_position_of_the_United_States)

~~~
danielvf
You are correct, I did have the wrong number.

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elevensies
This blog post explains why China's debt is a problem:
[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/)

From what I understand (something may be getting lost in translation)

\- The increasing debt is being used to keep up growth

\- The growth that is being bought by the debt isn't enough to service the
debt

\- Some sector of the economy will have to pay for it, because growth will
wither until it is paid.

Quoting: _China is also constrained from reducing the debt burden though
monetization, financial repression, or taxes on households because in each
case the cost is indirectly allocated to the household sector, which simply
exacerbates the original imbalance. This leaves only two alternatives. First,
Beijing can expropriate the wealth of small and medium enterprises directly or
indirectly (in the latter case by raising taxes), although this means
undermining the most productive part of the Chinese economy. Second, Beijing
can liquidate government assets and use the proceeds to pay down debt. There
are no other plausible options._

edit:

also: the process of deciding who gets forced to bear the debt will be highly
politicized and contentious. The blog post explains how there are strong
negative consequences to each choice.

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vkou
For context, the US has ~$145T outstanding public and private debt.

[https://en.wikipedia.org/wiki/Financial_position_of_the_Unit...](https://en.wikipedia.org/wiki/Financial_position_of_the_United_States)

~~~
cromwellian
But it's assets are huge, such that there's a net $128 trillion. The question
is, what's the other side of China's balance sheet look like?

~~~
AnimalMuppet
I'm not arguing with you, but... what's the source of that number?

~~~
nness
The very first sentence of the linked Wikipedia article.

"The financial position of the United States includes assets of at least
$269.6 trillion (1576% of GDP) and debts of $145.8 trillion (852% of GDP) to
produce a net worth of at least $123.8 trillion (723% of GDP) as of Q1 2014."

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xyzzy4
Seems irrelevant because like any country with a sovereign currency they can
just print more money if they want to. It's a much bigger problem if you have
debt and can't print your way out of it (for example Greece).

~~~
ktRolster
"Printing your way out" isn't really a solution, either.....Zimbabwe tried
that for a while, but gave up after inflation hit 80 billion percent per
month.

Prices would literally go up two or three times a day. If you had Zimbabwe
dollars, you would try to get rid of them as fast as possible, either by
exchanging them on the black market, or by buying something. If you waited
until the next day, you would lose a lot of money.

~~~
vkou
Hyperinflation (Especially unrealiable hyperinflation) is an untenable state
of affairs. Nobody lends, hedging is impossible, and cash becomes worthless.

Moderate amounts of inflation (Under 10%), on the other hand, has worked
'fine' for the better part of a century.

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petra
What would be the implications of this to American or European citizens , if
any ?

~~~
danielvf
Both China and Japan have extremely high amounts of debt relative to GDP, and
are both are still increasing spending.

Short term, the Chinese stock market will continue to fall - it's still
incredibly overvalued from the bubble. US and European stocks should continue
to be slightly affected. Anyone with a clue has already priced the Chinese
effect into stock prices.

Short and mid term, any money that can will continue to attempt to escape
China. Land/Houses/Industries in popular areas may be a little overvalued in
the popular places in the US and Europe.

~~~
shostack
So we can expect Bay Area home prices to continue their trend for a bit
longer?

~~~
danielvf
Yes. At least until people figure out that life can be awesome (and real
estate is 1/4 the price) outside it.

~~~
cylinder
Land values are not about lifestyle and preferences, they are about interest
rates, scarcity, and proximity to economic production.

As services and particularly technological services become more important and
create more value, the value of land proximate to these activities will
continue to increase, because the business depends on talent, and network
power i.e. relationships with other individuals (which require proximity). As
for interest rates, I forecast they stay low for decades as inflation will
remain suppressed.

There could be several cyclical downturns along the way but I can't see any
way land values in the Bay Area don't appreciate at an annual rate greater
than national CPI ~30 years from now.

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gscott
China is impervious to any amount of debt and should let it all default right
away. Normally if you are heavily in debt say you have a bad credit score, no
one will want to lend to you. However if you have a bad credit score and
millions of people moving from poverty to the middle class and companies
around the world want to sell to them... that is a different story altogether.
It is not like there is another market like China available. China is the only
growth market available, anywhere. Companies are so desperate to sell in China
they have transferred all of their intellectual property to companies inside
of China for the privilege even though it will destroy the companies in the
long run.

~~~
pil4rin
You wouldn't consider India or many parts of Africa a growth market?

~~~
gscott
No, right now India doesn't have a growth mindset because of their many laws
and probably corruption. Africa is not stable enough for meaningful growth
however... China is doing their best to change that and make Africa a growth
market for them by working with stable dictators no matter how brutal and
terrible they are.

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pm90
For a good context on this, I would highly recommend "The Global Minotaur" by
Yanis Varoufakis. It really changed my understanding of the use and flow of
debt, specifically sovereign and institutional debt.

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csense
This article: "How China accumulated $28 trillion debt in such a short time."
At the bottom it says "Now watch: China is immortalizing its founding leader
with an enormous 121-foot gold-plated statue."

I guess the second headline answers the first headline's question.

~~~
sp332
Gold plate is cheap.

~~~
nness
Not symbolically.

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torpilla
Debt to whom? Who had 24T to lend to them? How did they make that 24T?

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dev1n
> _So now that government debt doesn 't look so isolated. China might need its
> money back, suddenly._

So is this referring to debt that America owes China?

~~~
vkou
Unlike a loan shark, a holder of government debt can't just ask the debtor to
pay up their five year loan yesterday.

~~~
dev1n
Gotcha. Thanks for the reply. Is it likely China would try and do something
crazy like that?

~~~
vkou
They can ask for whatever they want, but they won't get it. (And they won't
ask.)

What they can do is start selling the debts they own for cash on the open
market.

~~~
dev1n
and that would cause a run from the yuan, right?

~~~
vkou
I'm not sure - it will, however, make it more expensive for the US to sell new
bonds. (Why lend Uncle Sam $100 at a 1% interest rate, when you can buy a
piece of paper that says Uncle Sam will pay you $100 next year for $98 from
China?)

