Imagine China is the Titanic and local government debt of up to 40 trillion yuan (US$5.78 trillion) is a giant iceberg lurking in a sea of economic uncertainty.
Now, consider the effects of a collision.
A report released by one of the “Big Three” credit rating agencies, S&P Global, has painted this vivid picture of a looming financial disaster in the world’s second-largest economy.
“The extent of off-balance-sheet borrowing among local governments isn’t known, but could be as high as 40 trillion renminbi,” S&P Global Ratings stated in a report released on Tuesday. “That’s a debt iceberg with titanic credit risks.”
Most of the “hidden debt” is festering in local government financing vehicles, or LGFVs, which were set-up by state-owned companies to raise funds for massive infrastructure and development programs.
Usually, this sort of “off-balance-sheet borrowing” is done outside the normal channels of central government, which has alarmed Beijing as it battles to crack down on debt.
Last month, Liu Shijin, a member of the Monetary Policy Committee of the powerful People’s Bank of China, warned that excessive investment in infrastructure and property projects was not the long-term answer to China’s growth dilemma.
In the wake of a cooling economy, funding has accelerated again for major road and rail developments, as well as housing schemes.
“Although investment in building roads, railways and housing can play a role in preventing a precipitous decline in growth, its potential to drive economic expansion over the long run has waned,” Liu said, adding that this would only exacerbate China’s deleveraging problems.
His comments have not been lost on the State Council. The de facto cabinet of President Xi Jinping’s government has made tackling debt in the corporate and local government sectors a priority.
Naturally, this has included off-balance-sheet “hidden” risks, which have been accumulating for the best part of nearly two decades.
By the end of April, “the official” debt mountain had topped 16.61 trillion yuan, data from the Ministry of Finance showed. The S&P report puts the figure at more than double that.
“Local government officials never worry about repaying debts, they only worry that no one is lending them money,” Yin Zhongqing, the deputy director of the financial and economic affairs committee at the National People’s Congress, said earlier this year.
“Part of the reason was that all local governments are part of a centralized authority that will eventually be bailed out.”
Tighter regulations have been brought in during the past 12 months, but the addiction to debt remains, squeezing spending on health care, social security and welfare, as well as environmental issues.
At least, Beijing is on the right track, S&P pointed out, despite battling the fallout of the trade war with the United States and a sluggish economy.
“Defusing financial risks, including hidden local government debt, is one of three overarching priorities of the country’s top leadership,” the rating agency said.
As SS China steams toward a huge debt iceberg, changing course has become crucial in keeping local governments afloat.
Lots of comments below look very similar to the ballroom scene when Titanic was hit.. hugely dismissive and in denial. Need for the soft spoken Captain to say something like .. "she will go down in 4-5 hours".. 🙂
Lots of comments below look very similar to the ballroom scene when Titanic was hit.. hugely dismissive and in denial. Need for the soft spoken Captain to say something like .. "she will go down in 4-5 hours".. 🙂
Asia Times Staff. You take as your shield your preamble – ‘S&P Global Ratings warns that ‘off-balance-sheet borrowing’ by local governments in the country could be as high as US$5.78 trillion’. But it is all like the enticement of a gypsy soothsayer at a country fair. How accurate and reliable was Standards and Poors in their ratings of the financial institutions that triggered the 2008 GFC? What do they know about the nature manner and form of legal creative accounting shenanigans in China that is the equivalent of ‘derivatives’ and commercial paper of Wall Street and London City?
OBS borrowings in China and particularly with State Government Enterprises must be seen within the context of an unique hybrid economic capitalism model of balancing the two arms State Capitalism and Private Sector Capitalism. They must be taken together as affiliated in tandem and not be viewed as separate and exclusive economic engines in productivity and growth. In China private enterprise is more like a franchisee or licensee.
It is not as if in China we have the Western ‘slight of hand’ of mendaciously having liabilities ‘Off the Balance Sheet’ and just showing annual lease finance repayments in the Revenue Statement or Net Equity in a partnership or Trading Trust without the need to disclose the liabilities within these investments.
SOEs are owned by the State and therefore its people. The accounting procedures do not allow SOEs to ‘inflate’ the equity or capital of the State by marking them up to the market or inflated values of the assets and property that the original equity and capital had been expended on.
With one hand you have SOE in industry etc and the other hand SOE with money. It is like the State being the ‘banker’ and ‘customer’ under different hats. Not even that as in most cases the SOEs are being financed by the major State owned banks. And so an SOE borrower will be deemed creditworthy by the SOE lender became between them as 2 affiliates they mutually have confidence in the off balance sheet professional valuation statement certifying what the market value of the borrowing SOE assets is above the official book accounting values. And to those not in the know the financial accounts therefore are askewed when the debt/equity ratio looks horrendous!
Well they might be and might not be, depending on the ‘added-value’ of the public capital infrastructure expended, since this was what most of the loans were approved for ‘off balance sheet’. In the case of the blocks and blocks of ghost high rise city apartments in new cities it would seem on an auditor’s appraisal there is instead a diminished value when balanced against the related funding.
But the situation is saved because nothing is outside the shadowy secretive ‘enclave’ – it is just the right hand dealing with the left hand! The State with its ‘fiat’ to create money lends out money to itself wearing a different SOE hat, to build public infrastructure which at the end of the day belongs to the State because there is no private ownership of realty in China.
It is like the State playing musical chairs where at the end of the day it is guaranteed a chair. So no Titanic, no panic, do not worry about the ‘chairs’ but focus on continuing with the ‘music’. Music makes the world go round.
It is therefore nonsense to financially appraise a SOE vehicle that is meant to be evaluated on its social utility status and not its profit making capacity. An public infrastructure builder SOE borrowing from the State with its fiat money where the State owns all land will always get its money and land back. No one gains or becomes rich through land capital appreciation but the State and its people!
Vincent Cheok @ https://whirlwindrambler.com/
Asia Times Staff. You take as your shield your preamble – ‘S&P Global Ratings warns that ‘off-balance-sheet borrowing’ by local governments in the country could be as high as US$5.78 trillion’. But it is all like the enticement of a gypsy soothsayer at a country fair. How accurate and reliable was Standards and Poors in their ratings of the financial institutions that triggered the 2008 GFC? What do they know about the nature manner and form of legal creative accounting shenanigans in China that is the equivalent of ‘derivatives’ and commercial paper of Wall Street and London City?
OBS borrowings in China and particularly with State Government Enterprises must be seen within the context of an unique hybrid economic capitalism model of balancing the two arms State Capitalism and Private Sector Capitalism. They must be taken together as affiliated in tandem and not be viewed as separate and exclusive economic engines in productivity and growth. In China private enterprise is more like a franchisee or licensee.
It is not as if in China we have the Western ‘slight of hand’ of mendaciously having liabilities ‘Off the Balance Sheet’ and just showing annual lease finance repayments in the Revenue Statement or Net Equity in a partnership or Trading Trust without the need to disclose the liabilities within these investments.
SOEs are owned by the State and therefore its people. The accounting procedures do not allow SOEs to ‘inflate’ the equity or capital of the State by marking them up to the market or inflated values of the assets and property that the original equity and capital had been expended on.
With one hand you have SOE in industry etc and the other hand SOE with money. It is like the State being the ‘banker’ and ‘customer’ under different hats. Not even that as in most cases the SOEs are being financed by the major State owned banks. And so an SOE borrower will be deemed creditworthy by the SOE lender became between them as 2 affiliates they mutually have confidence in the off balance sheet professional valuation statement certifying what the market value of the borrowing SOE assets is above the official book accounting values. And to those not in the know the financial accounts therefore are askewed when the debt/equity ratio looks horrendous!
Well they might be and might not be, depending on the ‘added-value’ of the public capital infrastructure expended, since this was what most of the loans were approved for ‘off balance sheet’. In the case of the blocks and blocks of ghost high rise city apartments in new cities it would seem on an auditor’s appraisal there is instead a diminished value when balanced against the related funding.
But the situation is saved because nothing is outside the shadowy secretive ‘enclave’ – it is just the right hand dealing with the left hand! The State with its ‘fiat’ to create money lends out money to itself wearing a different SOE hat, to build public infrastructure which at the end of the day belongs to the State because there is no private ownership of realty in China.
It is like the State playing musical chairs where at the end of the day it is guaranteed a chair. So no Titanic, no panic, do not worry about the ‘chairs’ but focus on continuing with the ‘music’. Music makes the world go round.
It is therefore nonsense to financially appraise a SOE vehicle that is meant to be evaluated on its social utility status and not its profit making capacity. An public infrastructure builder SOE borrowing from the State with its fiat money where the State owns all land will always get its money and land back. No one gains or becomes rich through land capital appreciation but the State and its people!
Vincent Cheok @ https://whirlwindrambler.com/
I maintain again that economic progress made through the peddling of cheap , fake and single use goods , in poor countries with weak governance, made from unlawfully stolen and copied intellectual properties, has legs of straw. The theft and transfer to china of the wealth of poor countries through the use of deceit ie. Fake /counterfeight goods is not a sustainable and acceptable trade practice. The use of soft loans as a bait to trap poor countries into china’s debt trap, with the wicked intention to take over strategic state assets and eventually to colonise poor countries if they default in loan repayments , is also a unsustainable and wicked trade practice. Over time, the deceitfull red dragons wicked ways will find it out , and the one and only true God of Israel will hold the red dragon accountable.
Like the Titanic, the giant red dragon,s great march and great leap forward will come to disasterous end.
I maintain again that economic progress made through the peddling of cheap , fake and single use goods , in poor countries with weak governance, made from unlawfully stolen and copied intellectual properties, has legs of straw. The theft and transfer to china of the wealth of poor countries through the use of deceit ie. Fake /counterfeight goods is not a sustainable and acceptable trade practice. The use of soft loans as a bait to trap poor countries into china’s debt trap, with the wicked intention to take over strategic state assets and eventually to colonise poor countries if they default in loan repayments , is also a unsustainable and wicked trade practice. Over time, the deceitfull red dragons wicked ways will find it out , and the one and only true God of Israel will hold the red dragon accountable.
Like the Titanic, the giant red dragon,s great march and great leap forward will come to disasterous end.
If the Chinese economy is like the Titanic, moving quickly through iceberg-waters, then the U.S. economy is the Titanic after it has struck the iceberg and is quickly sinking but everyone still believes it can’t sink.
China has no foreign debt, it’s foreign reserves are huge, it’s growing rapidly, it has intentionally cooled its housing market in the past few months, and its trade is increasing rapidly with all countries except for the U.S.
If the Chinese economy is like the Titanic, moving quickly through iceberg-waters, then the U.S. economy is the Titanic after it has struck the iceberg and is quickly sinking but everyone still believes it can’t sink.
China has no foreign debt, it’s foreign reserves are huge, it’s growing rapidly, it has intentionally cooled its housing market in the past few months, and its trade is increasing rapidly with all countries except for the U.S.
Important facts embedded in wishful thinking and explained inadequately. The US Deep State has found an enemy (or two), and will give us nothing but anti-China (and anti-Russia) propaganda from now on. In reading the media (which are naturally intertwined with the Deep State), we now have to always remember that we are at war, and truth has become the first casualty.
Important facts embedded in wishful thinking and explained inadequately. The US Deep State has found an enemy (or two), and will give us nothing but anti-China (and anti-Russia) propaganda from now on. In reading the media (which are naturally intertwined with the Deep State), we now have to always remember that we are at war, and truth has become the first casualty.
…well that must mean the US is Precambrian Earth facing Chixculub impact…..some 2 days before…..
…well that must mean the US is Precambrian Earth facing Chixculub impact…..some 2 days before…..
US economy isn’t Chartalist/Social Credit based and Chinese economy is. China can retire debt anytime they choose to do so and the US would require a revolution. Maybe Asia Times should start sharing Henry C.K. Liu’s articles.
US economy isn’t Chartalist/Social Credit based and Chinese economy is. China can retire debt anytime they choose to do so and the US would require a revolution. Maybe Asia Times should start sharing Henry C.K. Liu’s articles.
S&P the most trust worth credit agency that rate Lehman AAA and all the mortgage CDOs AAA. Hahhahaha…
S&P the most trust worth credit agency that rate Lehman AAA and all the mortgage CDOs AAA. Hahhahaha…
They played Jeffrey Dahmer with him Shawn…..what a despicable country this sawdi is….right up the trump alley.
They played Jeffrey Dahmer with him Shawn…..what a despicable country this sawdi is….right up the trump alley.
US economy like the Titanic, moving towards iceberg at full steam ahead – economist
The US economy is on the rise, but its expansion is coming to an end, warns Scott Minerd, Global Chief Investment Officer at investment firm Guggenheim Partners.
AT is now copying from RT. LOL!
US economy like the Titanic, moving towards iceberg at full steam ahead – economist
The US economy is on the rise, but its expansion is coming to an end, warns Scott Minerd, Global Chief Investment Officer at investment firm Guggenheim Partners.
AT is now copying from RT. LOL!