China's debt mounts to $2.78 trn, 43% of GDP

[Major Shaitan Singh]

China may be sitting on world's highest foreign exchange reserves of about USD 3.20 trillion but it is also burdened with USD 2.78 trillion government debt causing great deal of concern among policy makers.

China's government debt amounts to about 17.5 trillion yuan (USD 2.78 trillion) about 43 per cent of the country's gross domestic product ( GDP), Yang Kaisheng, president of the Industrial and Commercial Bank of China, said today.

It is composed of 10.7 trillion yuan (USD 1.7 trillion) of local government debt and 6.8 trillion yuan of central government debt, Yang told a press conference on the sidelines of China's annual parliamentary session.

As the concerns over the debt mount, China's Bank regulator has said that the government will take steps to guard against possible defaults which could cause extensive damage to the financial stability of the country's banks.

China will boost the clean-up of thousands of millions of local government's debt in 2012, so as to guard against the possible defaults that would hurt its banks, China Banking Regulatory Commission (CBRC) said on March 2.

To start with efforts will be made to focus on cleaning up old loans made to local government financing vehicles (LGFV) while tightening new debt issues and raising cash to debt coverage ratios, it said.

The CBRC will strictly control the use of LGFV loans, while giving priority to key projects that are under construction, it said.

The regulator will also improve risk monitoring and reclassify LGFV loans to relieve pressure from banks.

Analysts said any default of a certain proportion of the loans will push up non-performing loan ratios in the banking industry and threaten banks' credit ratings.

The concerns over the rising local debt prompted Chinese Premier Wen Jiabao to state last month that his government has taken the issue seriously.

"Currently our government debts are in an overall safe and controllable level," Wen said.

Besides the local debt, China's foreign debt has increased to USD 697.16 billion at the end of September, up from USD 548.9 billion in 2010.

Officials maintain that the debt is manageable as China is backed by USD 3.20 trillion forex reserves.

China's debt mounts to $2.78 trn, 43% of GDP - The Economic Times

 

[rama]

$2.78 trn
r u kidding??

 

[AbhijitSingh]

$2.78 trn
r u kidding??

Its not external debt..

 

[Deno]

If I am not wrong, China has 3 trillion dollars of foreign reserves... and external debt around 1 trillion dollar... So China is fine...

You don't need to worry yourself...

 

[Raphael]

Public debt at 43% of GDP is pretty low:

List of countries by public debt - Wikipedia, the free encyclopedia

The great powers all have 80%+ public debt, rising all the way up to 220% for Japan.

 

[Paan Singh]

i never knew this..
where is chinese dragon who gloat about indian debt?

 

[Aramsogo]

i never knew this..
where is chinese dragon who gloat about indian debt?

indian debt much higher, 80% plus with nothing to show for it. At least China got the infra and HSR.

 

[Paan Singh]

indian debt much higher, 80% plus with nothing to show for it. At least China got the infra and HSR.

indian debt is around 300 billion as per 2011 estimates and plz dont bring india in it..
then you cry that indian did this and this

 

[Raphael]

Prism, you brought India in to this...

 

[AbhijitSingh]

How Will China Pay Off Its Debt?
How Will China Pay Off Its Debt? - Forbes

Here’s some terrific news about China’s economy: at the end of last year, the debt-to-GDP ratio of the Chinese government, the key measure of its fiscal sustainability, stood at 16.3%. That’s an improvement from the already impressive 17% at year-end 2010.

Based in large part on Beijing’s low debt load, the Economist’s “wiggle-room index,” which ranks economies on their ability to afford stimulative measures, assigns a great rating to China. Of 27 emerging nations, only petroleum-blessed Saudi Arabia and Indonesia look stronger.

China does not have as urgent a need to bolster growth as other newly developing countries, the Economist suggests, and in any event it has lots of space to wiggle. “China’s ample room for easing supports the case for a soft rather than a hard landing of its economy,” the publication says.

All this sounds wonderful, but none of it correlates with the facts. The 16.3% calculation excludes Beijing’s “hidden liabilities.” Once you add them in, China’s debt-to-GDP ratio increases to somewhere between 90% and 160%. And if you believe Beijing has been overstating its GDP recently—it has, at least starting from the last quarter of last year—China’s ratio approximates Greece’s 164%.

Analysts, surprisingly, don’t seem to be concerned about Beijing’s debt, no matter how it is calculated. As Tom Holland of the South China Morning Post points out, the assumption is that China can grow its way out of this problem because it has always been able to do so in the past.

China’s economy, despite the Economist’s assessment, is already landing hard. January’s results were dismal—the economy looks like it may even have contracted last month—and there will not be much improvement until the summer, if then. If there is no marked uptick this year, Beijing faces difficult choices because, as the “ghost city” phenomenon indicates, there has been a gross misallocation of capital since the end of 2008.

What are Beijing’s choices? First, central government technocrats could force the banks to absorb losses. At first glance, it appears the banks could afford substantial write-offs. The industry’s non-performing loan ratio was 0.96% at the end of last year, down from an already unbelievable 1.14% at the end of 2010. Yet the central government will not force banks to write off large quantities of loans because the year-end 2011 ratio does not reflect the real state of bank balance sheets. The Ministry of Finance could again recapitalize the banks, but that may not be feasible. The central government has yet to clear all the bad loans from the big bailout at the end of the 1990s. China’s hidden liabilities include warehoused loans from that era, which Holland estimates amount to 7.5% of GDP.

So there is no or minimal growth, the banks are not strong enough to shoulder significant losses, and the central government is weighed down by 1990s-era bad loans. What is a central government technocrat to do?

“Beijing can take the path traditionally followed by other governments around the world and inflate its way out of the problem,” Holland wrote on Friday. The general downward trend in consumer inflation looks to offer some flexibility, but prices—and especially those for food—are going up much faster than the numbers issued by the Bureau of National Statistics indicate.

It would be easy to create more inflation. The renminbi has strengthened recently, but most analysts believe Beijing will end the upward movement in the next few months, in large measure to rescue ailing export factories, to make Chinese products cheaper on world markets. The inevitable result of a depreciating currency would be inflation, which would help the central government erode the value of its mounting debt.

Of course, China’s citizens, who accumulated 37.0 trillion yuan in household deposits by the end of last month, would be hurt by this tactic, but for more than three decades Beijing, by fixing deposit rates at abnormally low levels, has maintained an economic model that has punished them to help borrowers. Low deposit rates would depress consumption by keeping money out of the hands of citizens, but Chinese leaders have never been serious about building a consumer economy. In no economy today does consumption play a lower role.

And in a China where everything is political, there is one more factor to consider. Communist Party leaders are extraordinarily sensitive to inflation due to its potential to create widespread social unrest.

So, yes, there would be many disadvantages to using inflation to solve China’s debt situation, but at this moment it looks like the least bad option for Beijing’s out-of-solutions technocrats. The Economist may believe they once had lots of room to wiggle, but their choices are all unpalatable—and they are narrowing fast

---------- Post added at 07:08 PM ---------- Previous post was at 07:07 PM ----------

Chinese debt has risen by 200% in the last 5 years | The Big Picture

 

[Hideki Yukawa]

This is the good news that ppl likes Hong Wu should knows. May be they will feel "happy"! Congratulation!

 

[AADHAAR]

india the self gloating super power has a 70% debt to gdp and their fx reserve is about the same as our 7-million people HK @ less than 1/10 of ours. Please do not call China a superpower coz we know we have lots to do. Call india the superpower cos they want it even though they do not know the gap between their ego and capabilities is the biggest in the universe. We are starting works on our infrastructures in 3rd to 4th tier cities. india has not completed theirs at 1st tier level.

atleast leave alone HK ... it's external debt is $750 billion (which is two and a half times it's forex reserves of $285 billion).

if HK is indeed considered part of PRC, pay up.

 

[seethru]

this is incorrect. the debt comprises inter bank loans and printing of bank notes on back of bank deposits. also fx reseserve is just one of HK's reserves. your wikipedia info only tells a fration of the story. Are the indian problems too big to be worried about then they take a turn amusing yoursleves by eating tons of sour grapes celebrating our achievements?

I think these things won't happen in India, at least not as fast. Traditionalist skepticism of new Policies is rampant in India. So, the idea that India's problems, if they are to arise, would be as difficult as China's is wrong.

 

[Aramsogo]

I think these things won't happen in India, at least not as fast. Traditionalist skepticism of new Policies is rampant in India. So, the idea that India's problems, if they are to arise, would be as difficult as China's is wrong.

India's debt problems are already way worst than China's (but without any of the benefits). Stop kidding yourself.

Chinese State Owned Enterprises owe Chinese Money to Chinese state owned banks. What?? China is going to force bankruptcy on itself??

Indians getting desperate in their jealousy and envy.
"Males shouldn't be Jealous, That's a Female Trait" - Jay-Z

 

[SinoChallenger]

LOL at fake indian news. China's 2011 GDP is $7.5 trillion. The debt is only 30% of GDP.

indian inferiority fail