Posted on 05/21/2016 6:38:20 PM PDT by TigerLikesRooster
China’s financial system
The coming debt bust
It is a question of when, not if, real trouble will hit in China
May 7th 2016 | From the print edition
Timekeeper
CHINA was right to turn on the credit taps to prop up growth after the global financial crisis. It was wrong not to turn them off again. The country’s debt has increased just as quickly over the past two years as in the two years after the 2008 crunch. Its debt-to-GDP ratio has soared from 150% to nearly 260% over a decade, the kind of surge that is usually followed by a financial bust or an abrupt slowdown.
China will not be an exception to that rule. Problem loans have doubled in two years and, officially, are already 5.5% of banks’ total lending. The reality is grimmer. Roughly two-fifths of new debt is swallowed by interest on existing loans; in 2014, 16% of the 1,000 biggest Chinese firms owed more in interest than they earned before tax. China requires more and more credit to generate less and less growth: it now takes nearly four yuan of new borrowing to generate one yuan of additional GDP, up from just over one yuan of credit before the financial crisis. With the government’s connivance, debt levels can probably keep climbing for a while, perhaps even for a few more years. But not for ever.
(Excerpt) Read more at economist.com ...
P!
Thanks for posting!
I continue to be amazed that virtually every country in the world seems to be deeply in debt. It doesn’t seem possible, and yet here we are.
There are an abnormal number of gloom and doom reports out over the past couple of weeks.
But, it seems like we keep pulling the rabbit out of the hat. I’ve played on teams like that. In the end, the luck runs out. Cinderella is a fairy tale.
I wonder when this streak will really end?
- Real economy in Depression?
The Stock Market Soars
- Real unemployment at 22%?
The Stock Market Soars
- Debt at critical levels?
The Stock Market Soars
- Retail implosion?
The Stock Market Soars
The Fed made a decision to prop up the Stock Market, no matter what. Rounds of QE. ZIRP. Free cash.
What they have done is pack tons of explosive TNT into our economy and hope that no one notices.
How about you just say Chinese instead of a racial hate word!
You're on the wrong website, you racist, American-hating scum bucket!
Come now, I want what's best for America. Since the chinese are smarter than Americans, America would be better off populated by Chinese. Who needs dumb people when you can have smart people with astronomical SAT scores?
Delightful propaganda from those London gangsters...er, bankers.
Yea, and it’s not like the a**holes running them all just coincidentally didn’t happen to notice any of the dozens of instances this didn’t work out in even just the last 100 years or so...
MF estimates that 15% of Chinese loans to nonfinancial corporations are at risk. With nonfinancial corporations’ debt currently standing at 150% of GDP, the book value of the bad loans could be a quarter of national income.
https://www.project-syndicate.org/commentary/china-bad-loan-solutions-by-barry-eichengreen-2016-05
In current situation, the threat of punitive tariffs by Trump would really hurt.
The Chinese should go for a consumer society as soon as possible, as it is impossible to increase the export. http://www.mauldineconomics.com/editorial/friedman-germany-has-a-bigger-problem-than-refugees
MF => IMF
the son of the Saudi king said that Saudi Arabia was interested in selling part of the state-owned oil firm Saudi Aramco. The only reason to put this on the table is that the Saudis need money badly
Exports constitute about 23 percent of China’s GDP. They make up almost 50 percent of Germany’s GDP and 30 percent of Russia’s. In Saudi Arabia, it’s 52 percent. However, in Japan it’s 16 percent. And, in the United States, exports are only 13.5 percent of GDP and only about 8 percent is attributed to countries outside of NAFTA. When we look at the export levels, we are measuring a nation’s vulnerability to the international system.
http://www.mauldineconomics.com/this-week-in-geopolitics/the-eurasian-storm
It won't help staving off impending debt crisis. Such a transformation won't happen overnight. I don't believe China has enough money to burn to hold debt crisis in check until it becomes a full consumer society, and generate enough earnings to pay down all debts accumulated along the way.
I agree that it will take time, thus they should start as soon as possible. But, it will be a debt crisis in any case.
Here are more vulnerable countries:
Exports of goods and services (% of GDP)
http://data.worldbank.org/indicator/NE.EXP.GNFS.ZS
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