The International Monetary Fund shouldn’t expect much warmth from Beijing these days. Its latest annual health check on Asia’s biggest economy is blunt, sweeping and sure to ruin Xi Jinping’s month as the Chinese president tries to maintain a veneer of omnipotence and stability.
The IMF’s worry, of course, is debt. It’s seen this horror film before in neighboring Japan and the odds of a happier ending for China are negligible.
“International experience suggests that China’s credit growth is on a dangerous trajectory, with increasing risks of a disruptive adjustment and/or a marked growth slowdown,” the IMF said.
What’s fascinating, though, is that we actually have three Asian lenses through which to view China’s debt quandary, none of which paint a particularly hopeful picture: Japan, Southeast Asia, and South Korea.
The common-thread reality is that no matter which lens you prefer, China’s rise as a global superpower is stalling before our eyes and Beijing’s meddling is to blame.
Beijing can boast all it wants about its Asian Infrastructure Investment Bank, “One Belt, One Road” adventure, and dominance in the South China Sea. But every nascent superpower needs to get the fundamentals right at home first. On that score, Xi’s China is failing in ways that imperil the global economy.
Japan comparisons get the most attention.
Indeed, when the IMF calls on China to “accelerate needed reforms and focus more on the quality and sustainability of growth,” it could just as easily be speaking of Japan, circa 1987.
China’s excesses are being fueled by a compliant central bank; an opaque shadow-finance system feeding dueling bubbles in credit, stocks, and property; and an enabling government.
China’s excesses are mounting, paradoxically, amid a this-time-things-are-different ethos of the kind that colored Japan’s rise.
China’s excesses are mounting, paradoxically, amid a this-time-things-are-different ethos of the kind that colored Japan’s rise.
If you walked into any American bookstore in 1987, best-seller racks were loaded with titles handing the future to Japan Inc. Well, not so much.
And yet the word on China is that it’s similarly unstoppable and run by geniuses defying the laws of economic gravity. We’ll see.
Southeast Asian comparisons focus on the region’s epic overcapacity in 1997 and China’s today: massive liquidity channeled from state-linked banks into politically-connected companies.
This institutionalized misallocation of funds warps incentives to build a vibrant private sector focused on innovation, productivity and global risk-management norms.
Beijing no longer has a pegged currency, but it obsessively steers the yuan in ways that distracted Thai, Indonesian and Malaysian officials back in the 1990s.
Likewise, Beijing suffers from a quantity-over-quality dynamic when ginning up gross domestic product.
Around the nation, dozens of cities that the outside world has barely heard of are racing to build six-lane highways, international airports, massive stadiums, shopping centers and white-elephant museums that will go underutilized over time.
Twenty years on, Southeast Asia is still grappling with the fallout from its boom times.
The Korean comparison, though, may be the most tantalizing.
The Korean comparison, though, may be the most tantalizing.
Observers are still struggling to understand what’s behind Xi’s hasty and panicky crackdown on a handful of companies — Anbang Insurance Group, Dalian Wanda Group, Fosun Group and HNA Group.
Two months ago, these conglomerates were the pride of China Inc., the vanguard of Beijing’s desire to spread its tentacles around the globe.
Many of the Communist Party bigwigs looking over Xi’s shoulder reveled in Anbang last year buying New York’s Waldorf Astoria for $2 billion and Fosun’s Guo Guangchang being compared with Warren Buffett.
Beijing now fears how their excesses, all financed with debt, imperil the national balance sheet. China, it seems, has a Korea-like chaebol problem on its hands.
The reference here is to the giant, family-run conglomerates that toppled Korea in 1997 and still hog up most of the economic oxygen today. Top-heavy China Inc. has a similar tail-wagging-the-dog problem.
For an economy growing about 6.7%, China’s 235% ratio of debt to GDP might not seem too alarming. But as Japan, Southeast Asia and Korea taught us, beware official data when national pride is at stake.
For an economy growing about 6.7%, China’s 235% ratio of debt to GDP might not seem too alarming. But as Japan, Southeast Asia and Korea taught us, beware official data when national pride is at stake.
So when the IMF says of China that “since 2008, private sector debt relative to GDP has risen by 80 percentage points to about 175%,” assume the magnitude is much greater.
Even at these levels, almost certainly overly optimistic levels, “such large increases have internationally been associated with sharp growth slowdowns and often financial crises.”
China won’t necessarily crash in the near future. But this fanciful view that its rise is unstoppable when it’s built on such flimsy foundations needs blunt revision, and fast.
Sounds like wishful thinking. I wish I wish China would crash. IMF has lost so much credibility after the last world crash especially the advice it gave countries such as Indonesia. People like Pesek and Gordan Chang continues to hope even if a China crash will bring ruin to any countries around the world. At least Gordan Chang has stopped pretending to be a financial consultant and openly become an attack dog on China.
You are damn right KS. Why do I always have this nasty feeling that all these self-proclaimed pretender as a know all on anything China write with a hpoe that China will die a horrible death soon? These whites/westerners may claim to have lived in China for years, but still that would not make them being an expert in any way. I hate to say this. Not being a real local , a foreigner can never really hope to understand China, its way of thinking, its psyche, its tradition and culture all contributes to them making the kind of decisions that they have been making. They may not be the perfect decisions, but as Deng said, much as China is a very "old" country, it at the same time is very very young just coming out from just over 30 years ago. To cross the many hazardous rivers, Deng advised to remember to feel the stones in each step as one crosses the rivers. There maybe missteps. One may slip and fall occassionaly, but all Chinese are well aware of the risks and accepted as part of "gowing up". I would advise all the know-alls, don’t worry too much about China. She will get there, come hell or high water. Worry about what crazy things your president Trump is going to do next.
China is not Japan! It is not a US controlled state. No doubt the neoliberal IMG wants markets opened up etc and hates state controlled enterprises. The IMF controlled states are all in an appalling state. The IMF gave Hong Kong stupid advice about tax but it prospers by ignoring it.
What a bunch of racist, self-idolizing adolescents in these forums, same idiots every day. No sign of critical reasoning in sight, all you fu**ers do is enable one another in your half hearted delusions of what the world is. Why don’t you get out and travel, and be part of this world, instead of talking sh** about everybody except your but* buddies your all love so much.
China
Corporate assets 552% of GDP
Households 332%
Foreign Exchange 39%
Public Sector 17%
https://www.bloomberg.com/graphics/2016-china-debt/
Total outstanding credit at the end of last year was equal to 258 percent of economic output, up from 161 percent in 2008, according to Bloomberg Intelligence estimates.
The debt burden is unevenly distributed. While the central government has a relatively low debt ratio, the corporate sector and local governments are more indebted.
http://www.bloomberg.com/news/articles/2017-03-07/china-s-finance-minister-indicates-room-for-more-government-debt
FRED: General government gross debt for China
https://fred.stlouisfed.org/series/GGGDTACNA188N#0
WIKI: “The International Monetary Fund, the Federal Reserve Bank of St. Louis[1] and other sources, such as the Article IV Consultation Reports,[2][note 2] state that, at the end of 2014, the "general government gross debt"-to-GDP ratio for China was 41.54 percent.[3] With China’s 2014 GDP being US$ 10,356.508 billion,[3][4] this makes the government debt of China approximately US$ 4.3 trillion.
The foreign debt of China, by June 2015, stood at around US$ 1.68 trillion, according to data from the country’s State Administration of Foreign Exchange as quoted by the State Council.[5] The figure does not include Hong Kong, Macau or that of Taiwan.[5] Chinese foreign debt denominated in the U.S. dollar was 80 percent of the total, euros 6 percent, and Japanese yen 4 percent.[5]”
By 2015, local government entities owed a total of about 18 million yuan (about one-third of China’s economy), mostly to state-owned banks who had made loans to the local governments "to fund risky land and property deals."[17] The Chinese central government authorized provinces to issue at least 2.6 trillion yuan ($419 billion) in bonds in 2015 in order to stabilize the financial system.[17] However, demand for provincial bonds from the private market was weak due to inadequate yields, and in May 2015, the central government directed state-owned lenders to buy the local bonds, creating a debt swap akin to a bailout.[17]
https://en.wikipedia.org/wiki/National_debt_of_China
BOOMBERG: Debt rose to 247 percent of gross domestic product in 2015, from 160 percent in 2005. Bloomberg Intelligence breaks China’s total debt into four components: bank, corporate, government, and household. For tickers, run {CHBGDCOP Index } and then type {DES }. Bank debt has decreased slightly in relation to the size of the country’s economy over the past 10 years, to 19 percent of GDP in 2015. Corporate debt, meanwhile, jumped to 165 percent of GDP from 105 percent. Government debt rose to 22 percent of GDP. Household debt has increased to more than 40 percent of GDP, a rise of 23 percentage.
While certain industries and enterprises have a lot of debt, Chinese companies’ average leverage isn’t high, according to a recent International Monetary Fund working paper. Since 2006, listed companies that aren’t state-owned have reduced median liabilities to 55 percent of common equity. At state-owned enterprises, however, median leverage has been unchanged at about 110 percent. Leverage has increased at the tail end of the distribution, driven by rising debt at companies in construction, mining, real estate, and utilities. An increasing share of debt is attributed to a few companies with high leverage ratios. China is different from other markets in an important way. Many large corporations and nearly all the major banks are state-owned.
https://www.bloomberg.com/news/articles/2016-08-28/digging-into-china-s-growing-mountain-of-debt
Although I hate China but this article is fake. The chinese government debt to GDP is below the 50 % mark not 235%. Here is a link for proof. China is a growing superpower and will soon overcome the US in GDP.
https://tradingeconomics.com/china/government-debt-to-gdp
Sounds like an reaction from KJ Ung of North Korea.
In a state control economy, I can hardly think that a free world economic theory would be applicable to China’s scenario. However, just a precaution, China may have to pay attention to the IMF advice and must develop a sustainable job market for the China population, particularly those from China midwest to China west. I thought that China’s 1st PhD PM recently had announced a plan to do just that: An uphill battle against China’s desire to become the global leader!
a lot of debt, but the consumer drives the economy. If the war on poverty, along with other gov. investments, moves 20 million people out of poverty and into the work force, the multiplier effect will drive GDP growth for years to come?
Beware of ‘running to Egypt’ – for it is also a false hope.
Read this with a pinch of salt.
IMF sure tries hard to shake iff image that it, along with world bank and adb, are nothing more than tools of American interests..
Why dont you clean your mouth with drain cleaner? Why dont you address the article then? I bet I have travelled more than you any time and how do you know I dont anything positive. And how is this article "positive"?
All fools eventually fall. Red, yellow, or white.
Black propaganda against China written by super idiots! This kind of thinking has been going on since the days of Mao Tse Tung! But as you can see, China’s progress goes on and on and on. China is the richest nation in the world, has the most powerful army, has advanced so rapidly in every human endeavor to become the most powerful nation on Earth!
IMF must read 3rd year under grads economics course.
Its clearly written: difference between internal and external debt.
External debt to be paid in foreign currency to foreigners, so huge problem.
Internal debt to be paid by local currency to countrymen by countrymen. In case of China, state owned banks would get money from either state owned or private companies.
So state can easily wave of the loans without any issue.
In fact a default will strengthen grip of state on China more.
SUCH BULLSHIT NEWS
Like strongman Suharto, the IMF is now ready to make salted fishmeat out of the collapsing Xi dude.
The military industrial complex will need to double its spendings on new weapon system to maintain its hegemony.
American got.dumbest nation title By electing dumb bush and trump. Thats why dimt give lectures and kiss your white supermacist terrorists asss
No it is not fake. You just need to read it properly. It doesn’t say Chinese govt debt is 235% of GDP. The article talks about China’s total debt of which the Chinese govt debt is a small percentage. Please refer to the following for a clearer view: https://www.bloomberg.com/graphics/2016-china-debt/
Giridhar Murali Thx man u cleared my doubts 😀
I am amazed, no let’s say perplexed amour the amount of blatant racism that is allowed when replying on this forum. "White westerners can’t understand China or its economy". What gives you the right to criticise in this way, only the fact that you don’t like what is being said. Don’t put yourself on a pedestal thinking that your economy can’t be commented on.