China's debt is 250% of GDP and 'could be fatal', says government expert

[Indx TechStyle]

China's debt is 250% of GDP and 'could be fatal', says government expert
Defaults in the hugely indebted corporate sector could derail state-owned banks, triggering a systemic crisis, economist says

Links between China’s state-owned companies and banks present a risk to the economy, according to the official think-tank CASS. Photograph: Andy Wong/AP

China’s total debt was more than double its gross domestic product in 2015, a government economist has said, warning that debt linkages between the state and industry could be “fatal” for the world’s second largest economy.

The country’s debt has ballooned to almost 250% of GDP thanks to Beijing’s repeated use of cheap credit to stimulate slowing growth, unleashing a massive, debt-fuelled spending binge.

While the stimulus may help the country post better growth numbers in the near term, analysts say the rebound might be short-lived.

The bad smell hovering over the global economy

China’s borrowings hit 168.48 trillion yuan ($25.6 trillion) at the end of last year, equivalent to 249% of economic output, Li Yang, a senior researcher with the leading government think-tank the China Academy of Social Sciences (CASS), has told reporters.

But the huge number, which includes government, corporate and household borrowings, was lower than some non-government estimates.

The consulting firm McKinsey Group said earlier this year that the country’s total debt had quadrupled since 2007 and was likely as high as $28 trillion by mid-2014.

The debt-to-GDP ratio is not the highest in the world. The US has a ratio of 331%, for example, much of which is accounted for by federal debt.

But part of the concern about China’s massive debt binge is that the most worrying risks lie in the non-financial corporate sector, where the debt-to-GDP ratio was estimated at 156%. This sector includes the liabilities of local government financing vehicles, Li said.

Many of the companies in question are state-owned firms that borrowed heavily from government-backed banks and so problems with the sector could ultimately trigger “systemic risks” in the economy, he said.

“The gravity of China’s non-financial corporate debt is that if problems occur with it, China’s financial system will have problems immediately,” Li said.

He added that the problem would also affect state coffers because Chinese banks are “closely linked to the government”.

China's 'feud' over economic reform reveals depth of Xi Jinping's secret state

“It’s a fatal issue in China. Because of such a link, it is probably more urgent for China than other countries to resolve the debt problem,” he said.

Speaking earlier this week, David Lipton, first deputy managing director with the International Monetary Fund, also singled out China’s corporate borrowing as a major concern, warning addressing the issue is “imperative to avoid serious problems down the road”.

Despite the concerns, China is having difficulty kicking its credit addiction. On Wednesday, the People’s Bank of China announced that new loans extended by banks jumped to 985.5 billion yuan last month, up from 555.6 billion yuan in April.

The country’s economy grew 6.9% last year, the slowest rate in a quarter of a century, and weakening economic figures have signalled the slowdown has continued this year.

@Mikesingh @LETHALFORCE @sayareakd @Superdefender

 

[Indx TechStyle]

@Srinivas_K @HariPrasad-1 @Bharat Ek Khoj Anybody knows, what's debt on India?

 

[Sourav Kumar]

Seems it was 66% in 2014..

http://www.tradingeconomics.com/india/government-debt-to-gdp

Is a global financial breakdown or recession looming? I have read that warren buffet, soros etc have all withdrawn their money from stocks..?

 

[ezsasa]

@Srinivas_K @HariPrasad-1 @Bharat Ek Khoj Anybody knows, what's debt on India?

Govt debt is 475 billion usd I.e around 23% of GDP. Unable to find corporate debt from govt sources.

On the larger point. If China bubble bursts, it will be much bigger than 2008 bubble burst.

Let's hope, it does not happen in next 5 years.

 

[Indx TechStyle]

Let's hope, it does not happen in next 5 years.

What and why?
BTW,
For Indian Debt, I guess it has been reducing.

 

[ezsasa]

What and why?
BTW,
For Indian Debt, I guess it has been reducing.

i was referring to chinese bubble, if any.
At this point in time our economic recovery has just started, Chinese slowdown directly and indirectly effects the whole world.

 

[Neo]

@Srinivas_K @HariPrasad-1 @Bharat Ek Khoj Anybody knows, what's debt on India?

The govt debt is around 67% of GDP:

http://www.tradingeconomics.com/india/government-debt-to-gdp

 

[ezsasa]

Govt debt is 475 billion usd I.e around 23% of GDP. Unable to find corporate debt from govt sources.

On the larger point. If China bubble bursts, it will be much bigger than 2008 bubble burst.

Let's hope, it does not happen in next 5 years.

for clarification, this is external Govt debt..

 

[Flame Thrower]

If Chinese bubble bursts, then that will be the largest economical disaster of all time.....

A few assumptions from my side.

1. Lets look at the world economy, EU is not in good shape, America... I'll explain it, India is good but dependent on America, Brazil... Political turmoil. Finally Middle East .... Crude oil is below $50/barrel since last 18 months!!?? & ISIS to add.
2. China has huge a reserves of American bonds. Attached link for refrence.
3. http://www.investopedia.com/articles/investing/040115/reasons-why-china-buys-us-treasury-bonds.asp
4. No one is sure about the Value of American bonds, which China has accumilated over past 25~30 yrs. Some say it is over 2 to 3 trillions and some say half a trilion.
5. Economist from China stated that, if we(China) are to sink then it will release American money in to market to collect as many Yuans as possible, just to get more stabe by having Yuans.
6. With Trillion dollars of American money in Market is really going to shake the American economy to its very roots, not to mention Fedaral debt which only adds more fuel tp fire.
7. It will screw American economy for sure, so is Indian economy as well. Remember 2008, and this American economy screwup is just going to be worse than 2008.
8. Even if everything goes well EU has issues, Imagine everything is wrong then... just don't, it will scare any european to core. To add more... Migration is just added catalyst for EU destruction.
9. Russian bear is just rising and licking its 1991 wounds, Crimea annexation and sanctions just added a bit more weight on the Bear and less than $ 50/barrel crude oil is a blow with Sledge Hammer. Slow down of world economy really wont help Bear.
10. Brazil is in political turmoil and not sure about another countries economies but it will be one heck of a disaster or we can say mother of all economic disasters till date. May take years if not decades for most of the world to recover from this shock.

This is my opinion folks, hope I am wrong.

 

[no smoking]

I am surprised that our Indian friends are still falling in the same trick for years:

Doesn't anyone notice the "250% of GDP" debt is "total debt" which includes government, corporate and all private debts in China?

 

[Indx TechStyle]

I am surprised that our Indian friends are still falling in the same trick for years:

Doesn't anyone notice the "250% of GDP" debt is "total debt" which includes government, corporate and all private debts in China?

But they are. They are 250% of GDP and concerns for global economy so concerns for ours too.
Whenever Chinese market falls, I can rarely see our points beefing up.

 

[Mikesingh]

Now what's going to happen to those massive Chinese investments in infrastructure especially in Africa?

The CPEC also seems to be in danger as Chinese companies have borrowed heavily from the Chinese Central Bank as well as other lending institutions. Will they be able to pay back the billions of dollars they have borrowed or is it going to be written off as bad loans which in turn would further exacerbate the economic mess the Chinese are heading into?

The Chinese think they're too clever by half and that will be the reason for their final downfall. The countdown has begun.

 

[Flame Thrower]

I am surprised that our Indian friends are still falling in the same trick for years:

Doesn't anyone notice the "250% of GDP" debt is "total debt" which includes government, corporate and all private debts in China?

@no smoking

Yes, that is the total debt of govt, corporate & private debts.

If I remember correctly, in 2008, recession has bad effect on the world, to prevent this affecting economic growth, China gave loans to everyone and major part of them went to construction & real estate industry, which is a non performing asset(please let me know if I am wrong)

As a result, there are lot of unused bridges appartments rather ghost towns.....
Few economists say that this real estate spendings might look like a waste. After 20~30 years , when population grows to 1.5 billion, it would be a great advantage to China, but currently they are non performing assets and more over its highly doubtful that by 20 years Chinese population hits over 1.5 billion.

When a country has 250% of debt and a huge amount of it is in non performing assest.... which could inturn become a bad debt and a writeoff. Yuan devaluation from past 20~25 yrs adds a bit more for downfall of economy.

Hope you remember what happened in the last few months!!??

Another de valuation of Yuan has created lot of fear among investors and If I remember correctly, China had spend over 100 billion dollars to buy Yuans to become stable. Which resulted tremors in World economy. Though India is a Neighbour, we hardly felt any tremors, if the bubble bursts completely, it is just going to be a economic disaster including ours.


Thanks to latest Yuan devaluation stunt and investors are shit scared, India is acting as atractive place for investors.

Investors moving from China will definitely hit Chinese economy, not to mention 250% debt and huge amunts of bad loans.

 

[HariPrasad-1]

@Srinivas_K @HariPrasad-1 @Bharat Ek Khoj Anybody knows, what's debt on India?

it is 66% of GDP so it should be around 1.3 to 1.4 TR USD.

 

[HariPrasad-1]

But they are. They are 250% of GDP and concerns for global economy so concerns for ours too.
Whenever Chinese market falls, I can rarely see our points beefing up.

It may adversly affect us in short term that is very very good for us in long term. China's fall will directly result into india being the factory of the world. our development is like Zero sum game So chinese fall is going to result into the rise of india. Many manufacturing companies are likely to shift to India.

 

[HariPrasad-1]

Chinese fall is inavitable. We must prepare ourselves on war footing bases so that we may fill the vacuum created by chinese down fall. If we are not ready, the space shall be filled by others and we will loose an opportunity.

 

[Indx TechStyle]

Chinese fall is inavitable. We must prepare ourselves on war footing bases so that we may fill the vacuum created by chinese down fall. If we are not ready, the space shall be filled by others and we will loose an opportunity.

R.I.P. English bro.
By the way, there's a quote.

There's nothing more lethal than underestimating your enemy.

And Chinese too are trying to solve the problem. Let's care about ourselves.

 

[HariPrasad-1]

R.I.P. English bro.

Inevitable is not a wrong choice of word.

By the way, there's a quote.
And Chinese too are trying to solve the problem. Let's care about ourselves.

What is underestimating Here. The article states that Chinese debt is fatal. So that is going to affect the its economy adversely. This is not my wishful thinking nor I am assuming something. China is going down. Even after lots of manipulation they are unable to show the growth rate above 6.7% which is 2/3 of growth rate of china in last decade. If we are ready than we can take advantage of downfall of china by diverting their manufacturing sector here. If we live in lame assumption of not underestimating enemy , we shall not be able to prepare ourselves for garbing opportunity which is approaching very fast.

 

[harsh]

In my view its not about debt it is about reputation.
Chinese hide their reputation in their growth numbers. Now everyone is against of these Chinese morons.
but fail to stop business as they invested a big amount there.
china will fall not because their debt. (It will play a part). But their karma is the main reason to fall quickly.

If india continues to advertise its market then Chinese monopoly will end and a new market will emerge as big as china .
and that is where china will fall to compete because of its chutiyapa foreign policy to attack every neighbour and fight every country in the world

 

[Oblaks]

Germany also has a total debt above their GDP. However the real indicator is the overall credit. For Germany's case, putting together debts (money borrowed) vs credits (money that they lent out) make them a net creditor. Means their credits+GNI-debts yields positive. For China's case I never bothered to researchon the numbers.. It's either I don't care or I don't believe.