China's Economy Is Running on Borrowed Money – and Time | Ruchir Sharma

[The Accountant]

The problem is not the total debt or private debt.. Problem is its growth model & private debt growth.. China is pumping money to the public to boost its consumption related growth.. That will only create bubbles.. For example Chinese football, Chinese property market etc.. Chinese clubs splashed out £52m on Oscar and £45m on Hulk, with the two players each said to be earning more than £320,000... Actually they are not even worth half.. Eventually these bubbles will burst.. You can't run an economy like that for years.. Supply side structural reforms are inevitable now..

You are reviewing on point of view of western economy which are already developed and very few growth opportunities i.e. the reason if a western country achieve 2% growth she is considered to be performing very well whereas in case of China even 6% is considered to be alarming ...

China is a developing market ... What the government is doing is injecting money in the local economy to boost local demand ... once the standard of living of local people increases it will create a cyclical impact of increased demand ... China already have a supply side available now in case they increase local demand it will be win win ...

Furthermore, you are ignoring the assets government of China has in its pockets ... Gov of China has very few public debt and alot of assets and reserves at its disposal ...

Nothing will impact China if there is a backruptcy of few 100 billion of dollars which is the worst case scenario ...

However, in reality China is total debt increase is resulting in increase of standard of living of people of China ...

 

[ohmrlobalobayeh]

China's Economy Is Running on Borrowed Money – and Time | Ruchir Sharma

You should take his words seriously.

He was one of the biggest China bulls of the last few decades.

@Shotgunner51

the last time i checked, China was and still is a Creditor nation, just like how other East Asian nations are.

These is despite the norm that developing economies are almost always debtor nations- that is they need keep borrowing money in order to build infrastructure and develop their economy. It's the same as someone who is keen in starting a business- you need to borrow and raise the capital first- and pay back the loans later.

The fact that such a massive country like China with tons of infrastructure to build and yet is still a creditor nation is nothing short of remarkable.

Compare China with debted developing nations of similar human capita who yet, have primitive development and the latter becomes laughable.

 

[My-Analogous]

China's debt problem is a big issue, not just for them but for the whole world.

I had earlier pointed out the same thing in another thread, that China is using up $4 worth of debt to create only $1. And this difference will only keep growing. The bigger problem is whether the debt is actually bigger than what's officially revealed.

This gives a pretty balanced view.
http://www.businessinsider.in/every...bt-problem-all-wrong/articleshow/56656456.cms

The report argues that they need to give more credit to private companies in China rather than public companies.



India's economy is incomparable, insignificant and irrelevant. Let's keep the discussion to the Chinese economy.

Why Indian making fun themself

Here is the comparison for India Pakistan and China. Starting with big economy to small one

China
National Debt: $1,952,591,803,279
Debt per person: $1,450.43
Reserves in Million $: 3011,000.00
Public debt as % of GDP: 17.7%
Total annual debt change: 11.6%

India
National Debt: $1,565,083,060,109
Debt per person: $1,254.21
Reserves in Million $: 360,780.00
Public debt as % of GDP: 54.2%
Total annual debt change: 13.4%

Pakistan
National Debt: $158,964,480,874
Debt per person: $790.97
Reserves in Million $: 23,246.2
Public debt as % of GDP: 47.0%
Total annual debt change: 10.5%

http://www.economist.com/content/global_debt_clock

Plus I put Pakistan also because as usual that what Indians do and they start truant on Pakistan. So compare to India with China, China is in very comfort zone and it is India who should worry about paying her debts.

 

[ahojunk]

How can we say China's economy is running on borrowed money? Which country is lending money to China?

China is a creditor nation, i.e. other countries owe her money. Officially US is still owing China about 1.2 trillion dollars. Not sure about the unofficial figure.
China is now building up her Sovereign Wealth Funds and doing FDI overseas focusing on OBOR countries.
https://defence.pk/threads/new-pivo...worlds-largest-sovereign-wealth-funds.455072/

It seems to me that China is setting up new SWF every now and then, when she feels like it.
To do that, you need money. China has lots of it. After all, China is a creditor nation. So is Hong Kong and Taiwan. Macao is probably too.

More info on the so-called debts of China. It is totally debunked here.
https://defence.pk/threads/asean-gd...-year-after-brexit.473899/page-2#post-9133841

Look at the companies China has acquired in the last few years:-
https://defence.pk/threads/china-global-m-a-push-2005-nowadays.389578/

It is better for the so-called western free press to focus on their problems instead.
Ah, I forget. Any China bashing news will sell their newspaper and get plenty of internet clicks.

Okay, if you are still not convinced about the financial stuff, how about looking at indicators here.
https://defence.pk/threads/china-regains-first-place-in-imf’s-world-economic-growth-report.473463/#post-9124864

If you want to look at pictures, see these threads:-
https://defence.pk/threads/china-ex...idges-infrastructure-news-and-updates.435098/
https://defence.pk/threads/china-hsr-news-and-information-original-translation.363685/


Stop spewing nonsense in this forum. Do it somewhere else.
.

 

[faithfulguy]

Why Indian making fun themself

Here is the comparison for India Pakistan and China. Starting with big economy to small one

China
National Debt: $1,952,591,803,279
Debt per person: $1,450.43
Reserves in Million $: 3011,000.00
Public debt as % of GDP: 17.7%
Total annual debt change: 11.6%

India
National Debt: $1,565,083,060,109
Debt per person: $1,254.21
Reserves in Million $: 360,780.00
Public debt as % of GDP: 54.2%
Total annual debt change: 13.4%

Pakistan
National Debt: $158,964,480,874
Debt per person: $790.97
Reserves in Million $: 23,246.2
Public debt as % of GDP: 47.0%
Total annual debt change: 10.5%

http://www.economist.com/content/global_debt_clock

Plus I put Pakistan also because as usual that what Indians do and they start truant on Pakistan. So compare to India with China, China is in very comfort zone and it is India who should worry about paying her debts.

Indians, either abroad or inside India, love to brag about beating China. You can say Indians like to brag too much if this statement is true. But India can barely hold itself against Pakistan, a country 8 times smaller. But despite the contrary to the fact, many Indians are obsessively comparing on how they are beating China on space exploration, military technology, economy, and scientific achievements. However, not all Indians think like that. There are few Indians who use common sense. Unfortunately, there are too few of them.

 

[nang2]

It is OK to build something that lasts for decades by borrowing money. The future generation will benefit so they shall pay, too. It is NOT OK to simply consume with borrowed money.

 

[windywine]

The speed of debt rising was quick too for US and UK back in 1930s when their governments pumped a lot of money into manufacturing sector to stimulate economy. China is on that stage now

And I think China is willing to stay on this stage and consider manufacturing sector as the basis of a country since China's central government has learned quite a lot of lessons from what UK, US and Japan are suffering now. You may have heard the slogan "Made in China 2025" from China government, showing the China's ambition for manufacturing.

The majority of China's debt is owing to the manufacturing sector. Unlike China, debt for the countries like UK, US, and Japan are mostly attributed to welfare and pension etc. And because of their voting system, such decline couldn't be stopped. Politicians are forced to promise more and more welfare in order to get elected and re-elected regardless of actual capability of government and nation's future. Any action to cut welfare means termination of his or her political career. Like Jean-Claude Juncker, the president of the European Commission, said we all know what to do, we just don't know how to get re-elected after we've done it.

 

[randomradio]

The speed of debt rising was quick too for US and UK back in 1930s when their governments pumped a lot of money into manufacturing sector to stimulate economy. China is on that stage now

And I think China is willing to stay on this stage and consider manufacturing sector as the basis of a country since China's central government has learned quite a lot of lessons from what UK, US and Japan are suffering now. You may have heard the slogan "Made in China 2025" from China government, showing the China's ambition for manufacturing.

The majority of China's debt is owing to the manufacturing sector. Unlike China, debt for the countries like UK, US, and Japan are mostly attributed to welfare and pension etc. And because of their voting system, such decline couldn't be stopped. Politicians are forced to promise more and more welfare in order to get elected and re-elected regardless of actual capability of government and nation's future. Any action to cut welfare means termination of his or her political career. Like Jean-Claude Juncker, the president of the European Commission, said we all know what to do, we just don't know how to get re-elected after we've done it.

There's not been a single developing country in history that has seen such a high increase in debt in such a short period of time.

US debt started increasing after the 70s, when they were termed a developed country. So you are wrong about the 30s thing.

And this happened because countries wanted to hold USD as debt, not that the US was in need of excess debt.

You can see the trend here, between the US and Chinese debt patterns.

 

[ahojunk]

There's not been a single developing country in history that has seen such a high increase in debt in such a short period of time.

US debt started increasing after the 70s, when they were termed a developed country. So you are wrong about the 30s thing.

And this happened because countries wanted to hold USD as debt, not that the US was in need of excess debt.

You can see the trend here, between the US and Chinese debt patterns.

Stop harping on the debt. Can you refer to this;

More info on the so-called debts of China. It is totally debunked here.
https://defence.pk/threads/asean-gdp...-year-after-brexit.473899/page-2#post-9133841

 

[Solomon2]

The Achilles heel of Chinese economics isn't necessarily the current borrowing bubble but the monetary policy related to it. There are some things the Chinese simply don't "get", specifically: the importance of issuing debt abroad and reliably paying it back to firmly establish China's reserve currency status in combination with managing renminbi value. Without that skill set Chinese are missing a valuable buffer to cushion their economy through economic downturns.

 

[windywine]

http://www.theatlantic.com/business...t-from-1790-to-2011-in-1-little-chart/265185/

There's not been a single developing country in history that has seen such a high increase in debt in such a short period of time.

US debt started increasing after the 70s, when they were termed a developed country. So you are wrong about the 30s thing.

And this happened because countries wanted to hold USD as debt, not that the US was in need of excess debt.

You can see the trend here, between the US and Chinese debt patterns.

Now you refer to the absolute amount of debt? Don't switch the talking point so often. I can't follow ya. Let me give a simple example. Debt from 1000 to 2000 is double or 100% increase while debt from 1 million to 1.1 million is only 10% increase. The rising rate in the former scenario is much higher than the latter. But the added absolute amount of debt in the latter scenario is 10 times higher than the former.


GDP from China's manufacturing sector is the size of US, Japan, and Germany combined. Of course, debt for non-financial enterprises in China is very high. No doubt.

 

[randomradio]

Now you refer to the absolute amount of debt? Don't switch the talking point so often. I can't follow ya. Let me give a simple example. Debt from 1000 to 2000 is double or 100% increase while debt from 1 million to 1.1 million is only 10% increase. The rising rate in the former scenario is much higher than the latter. But the added absolute amount of debt in the latter scenario is 10 times higher than the former.

I wasn't talking about absolutes. The graphs I posted only relate to percentages.

The first graph was meant to illustrate the rise of US debt after they became a developed country.

 

[windywine]

I wasn't talking about absolutes. The graphs I posted only relate to percentages.

The first graph was meant to illustrate the rise of US debt after they became a developed country.

Since you clarified that you didn't mean percentage nor absolute amount, but the rising speed of debt in your previous comment, then I said the rising speed of debt of US and UK back to 1930s was very high too. And also said the added absolute amount of debt of UK Japan and US were large because of welfare after they became a developed country.

Your second and third graphs have explained everything. China's total debt is high as illustrated in your THIRD graph, which is owing to the very high debt from non-financial sector (Second Graph).

It can be seen very clearly that majority of China's total debt (~270% of GDP in your THIRD graph) is due to the non-financial sector (more than 200% of GDP in your SECOND graph). It clearly means the China's debt from government, financial and personal & household are very very low.

As I pointed it out in my first comment in this thread, debt includes four sectors: government, financial, non-financial enterprise, and personal & household. The reason for high total debt over GDP of China is due to the rapid expansion of non-financial enterprise (manufacturing), which is given in your second and third graphs. Since the size of manufacturing in China is the combined size of the corresponding sector in US, Japan and German now, the large debt for non-financial enterprise (second graph) in China is not surprising.

As shown in your second graph, US' non-financial enterprise still have debt as large as more than 250% of its GDP. There is no surprise that China's non-financial enterprise owe more debt than US.

 

[thesolar65]

Chinese Economy with borrowed money, US economy with borrowed, Indian economy with borrowed money, Europe economy is on borrowed money.

Actually who is giving the money?

 

[randomradio]

Since you clarified that you didn't mean percentage nor absolute amount, but the rising speed of debt in your previous comment, then I said the rising speed of debt of US and UK back to 1930s was very high too. And also said the added absolute amount of debt of UK Japan and US were large because of welfare after they became a developed country.

Your second and third graphs have explained everything. China's total debt is high as illustrated in your THIRD graph, which is owing to the very high debt from non-financial sector (Second Graph).

It can be seen very clearly that majority of China's total debt (~270% of GDP in your THIRD graph) is due to the non-financial sector (more than 200% of GDP in your SECOND graph). It clearly means the China's debt from government, financial and personal & household are very very low.

As I pointed it out in my first comment in this thread, debt includes four sectors: government, financial, non-financial enterprise, and personal & household. The reason for high total debt over GDP of China is due to the rapid expansion of non-financial enterprise (manufacturing), which is given in your second and third graphs. Since the size of manufacturing in China is the combined size of the corresponding sector in US, Japan and German now, the large debt for non-financial enterprise (second graph) in China is not surprising.

As shown in your second graph, US' non-financial enterprise still have debt as large as more than 250% of its GDP. There is no surprise that China's non-financial enterprise owe more debt than US.

Most of China's debt is held by SOEs. This article argues that fixing the SOE debt may cost up to 25% of China's GDP.
http://www.reuters.com/article/china-debt-moodys-idUSL3N1872L0

According to the IMF, 55% of the corporate debt is owned by these SOEs, but they produce only 22% of the revenues.

The bigger problem with China is there really isn't much of a difference between SOEs and the govt.
http://www.zerohedge.com/news/2015-...ina-total-soe-debt-rises-1-trillion-one-month

This might be a reflection of how the government plans to tackle its massive debt. Luo mentions that one of the obstacles to managing government debt is that it remains difficult to draw a line between government and SOE debt.

If the govt can simply transfer its debt to SOE balance sheets, then that creates different kind of hurdles in estimating the actual debt burden in China.

So you claim that most of the debt is in the non-financial enterprise, which is fine, but what if the govt has only been transferring its own debt into the non-financial enterprises?

Anyway, this is from another Chinese source.
http://www.globaltimes.cn/content/1013480.shtml

Of all the difficulties and challenges that China faces, the debt issue is considered to be one of the biggest potential risks to the country's economy, and how to refrain the leverage ratios from rising too fast is directly related to the stability of China's economic transition.