Debt management was just carried out on those SOEs that government thinks is necessary.
Debt doesn't automatically generate revenue but it will automatically be counted into that year's GDP, but that generated debt won't be counted into next year's GDP. The interest or profit from the debt is considered as one of revenue, but not debt itself.
Manufacturing sectors will generate products regardless how much debt they owned. Whether writing off the debt or not for manufacturing enterprises will not prohibit them from production. And those production still will be counted into GDP. That's another reason why China government likes pumping money to manufacturing sectors not welfare.
One of the major problem faced by Chinese economy is its Over capacity.. Cutting this overcapacity is the first step of Supply side reforms.. Now China doing is nothing more than creating demand by lending money..
For example China produces 10 ton steel.. Actual demand is only 8 ton steel.. How you can sell extra 2 ton?? Lending money to local government for infrastructure/ housing loans for public etc..
But it creates some problems.. One is bubble formation and next is resource wastage.. China is using its leverage maximum.. The adjusted loan-to-deposit ratio, which includes a range of off-balance sheet items and is an indicator of the banking system’s ability to weather stress,
climbed to 80 percent as of June 30, according to S&P Global Ratings. For some smaller lenders, the ratio has already topped 100 percent, S&P estimates.At the current pace,
overall credit could surpass deposits on an adjusted basis within a few years -- a level that would give China little leeway to stave off financial turmoil, S&P says. That is China using its massively created wealth maximum.. That's why debt to GDP ratio is now $28 trillion.. If you think govt can write off these debts ( govt lend this to SOEs, local govt bodies), that will destabilize the banking sector.. How can you give the deposit back to the depositors ??
More you go forward like this, more problems are waiting... If you cut overcapacity or lending now,it will adversely affect your gdp.. But the problem is temporary.. Economy will stabilize and will start grow after sometime.. But if you postpone the much needed reforms, China will end up as an another Japan..
Chinese banks lend some $1.8 trillion to the public.. Adding another lending institutions it is saying that staggering $3 trillion pumped to the economy just last year.. This type of growth is not sustainable.. I am not saying 280% debt to GDP is a big problem.. But this type of growth model never works in an economy facing " OVERCAPACITY " problem.. What make sense injecting more money to manufacturing sector if you have overcapacity problem???
Current RMB currency is determined by demands from international market, not domestic demands. Domestic inflation and international currency increase can happen at same time. For instance, the debt of China during years of 08-14 increased a lot (your third graph), meanwhile inflation in China over those years was significant, however the RMB value over dollar during that time period was steadily increasing not decreasing.
Chinese currency is not a free floating currency like US dollar or Japanese Yen because still Central Bank intervene its valuation.. Between 08-14 Chinese Renminbi gains,why?? Because of two reasons.. One is huge trade surplus( more exports than import) & huge capital account surplus( net inflow+borrowing than net outflow+ crediting other nations).. If you have both of these , your currency value will increase.. But majority of this value increase is contained or manipulated by China using many interventions (for helping exports).. One is increasing forex reserves.. Second is crediting externally (thus reducing capital surplus).. That's China's reserves peaked $4 trillion in 2014.. But these trends also reversed.. Take a look at 2016.. Trade surplus decreasing steadily... Capital account deficit increased badly.. Almost $900 billion outflown in last year alone.. This capital flight looks good in Balance of Payment because it decreases liability.. But actually it is a very bad thing for a developing nation like China.. This capital outflow is because of one main reasons.. Investors no longer sees China as a good investment target.. That is why they are talking their wealth out of the country.. One major reason is Yuan devaluation.. Last year alone yuan depreciated 7%.. This is a vicious cycle.. Currency devaluation causes----> more capital out flow causes---> more currency devaluation.. Therefore central bank of China trying hard to stop devaluation of currency using forex reserves.. Reserves down from $4trillion to $3 trillion in just two years.. If you let Yuan free now, it is saying that it may devaluate upto 25%.. Trump is an added problem here.. If yun depreciate more ,trump will start a trade war stating China manipulating currency... So the problems are many in Chinese economy..
Since China is trying to internationalize the RMB, China has to learn to tolerate the certain degree of currency fluctuation.Otherwise China government can simply put a restricted currency like what they have done in 1990s - one dollar exchanges 8.4 RMB. Even now China likes devaluing RMB since China's economy is still strongly export driven. If US doesn't give much pressure on RMB devaluation, China really wants to go back to the currency in 1990s.
China is nowhere near to become a free currency or free capital market economy.. They still heavily control their currency ( now stopping devaluation).. They are now panickly controlling capital outflows..
