It means you can amass a bigger pile of debt at lower interest rates. The problem is that 60% of all new loans are going to service the interest on that debt and at $71 trillion, China is running out of maneuvering room. The consequences are mass defaults and the Chinese economy goes into depression.
It will also mean developing countries relying on Chinese loans... cough Pakistan... will run out of money.
...unless they can economically enslave countries like Pakistan and demand double-digit interest for paying their own companies to build pointless infrastructure? Am I right?
World economy is connected. China goes under, world trade goes under, everyone goes under!
Even Pakistan is complaining about $100 billion in pointless infrastructure loans from China being built with Chinese labour and source materials. If Pakistan could not keep up the payments China would demand ownership in national assets in exchange.
What you reported here is not govt debt, but bank debt.
+1
Chinese banks are state owned which makes all of it the liability of the government. NPLs are estimated at 20-30% of total liabilities, at $71 trillion that is between $14 trillion and $21 trillion in bad debt. 60% of new loans are servicing old loans so that should give you an idea of how bad it is getting.
Check any balance sheet. Liabilities = Assets
China is not as deeply connected as the US is, but the depth of contagion is so high it will probably be equal to it.
Chinese assets are crumbling ghost cities. What are they going to sell to come up with a $14 trillion bailout?
Inflation!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!
Chinese currency is pegged to the USD. If they let it drop no one will do business with them which is a no go for an export dependent economy. If they lose that sector they go back to Mao era poverty. China needs to suffer the defaults to clear out the bad debt, it will mean hard suffering but they must face it and get back to sustainable growth.
It is already super low, making their exports competitive.
The cheaper they make their exports the less profit they make. The reason they have such high NPLs is because they are already selling borderline or at a loss. Sell at a greater loss industry wide and guess what... no more industry.
Deflated currency does not mean cheaper for locals. Cheaper for outsiders for sure. Does not harm local profits. Increase them through increased production.
They can't do it in the first place. When the yuan drops China faces massive amounts of capital flight. The FOREX depletes to offset the loss of currency. If it drops below the balance of trade payments they can no longer trade. Without trade China goes belly up.
A currency devaluation of 6.5% lost nearly $1 trillion in FOREX, another drop like that and they are done. More exports at the same price doesn't mean more currency, it means greater losses to exporters. They already suffered 20 million lost export jobs the last time and inflated the property bubble to create temporary construction jobs to keep them employed. Inflation is not in the Chinese tool-belt.
Forex devaluation happens when you are trying to hold a currency at certain level.
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