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Could China Be the Next Greece?

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Oldman1

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Is the Chinese Economy's Debt Problem As Bad As Greece's? - The Curious Capitalist - TIME.com

There's a lot of finger wagging going on in the world about America's profligate ways. And a lot of comparisons between the budget troubles of the U.S. and the horrors facing Greece. The West, the story goes, stupidly spent beyond its means while emerging markets wisely saved their pennies for rainy days like these. But the West isn't the only part of the world grappling with fiscal troubles. Growth darling China has its own debt problems, and some analysts think those could wreak far more havoc on the global economy than what's going on Greece.

The Chinese government, which just produced its first national audit of local finances, announced this week that local governments could owe as much as 30% of China's GDP. That's a good deal more than the government's official debt load of less than 20% of GDP. And some analysts are putting China's real debt levels at three to four times those levels.

The Financial Times reports:

"If you take a very broad view of the Chinese government's contingent liabilities rather than explicit debt on the books then the number comes to well over 150 per cent of China's GDP in 2010," according to Victor Shih, a political economist at Northwestern University in the US.

If the China bears turn out to be right, just how bad could things get? London hedge fund manager David Yarrow said in a recent investor's letter that Europe's debt crisis is far less worrisome because people have adjusted to the idea, and so markets know what's coming. But whether China can handle its debt troubles is still up for debate. And a debt implosion in China would wreak far more damage, partly because it's not something markets have priced in.
(Read: Hard of Soft Landing for China? How About No Landing)

One reason for that is that no one knows how indebted China really is, since its government is prone to fuzzy math (even fuzzier, perhaps, that the government of Greece). The Economist's Ryan Avent chalked up a good graph to estimate China's total debts in light of the local debt announcement, including what China owes for splashing out on things like high speed rail and bad bank loans. He has some upbeat conclusions to offset the scary new estimates about local debts:

[China's debts are] not much higher than they have been across a period in which the Chinese economy grew extremely rapidly. Yes, local government borrowing soared behind efforts to keep the economy humming through the global crisis. But that rise has been offset by falling national and bank-restructuring bills.

All told, Avent estimates China's debt-to-GDP ratio is roughly 80%, which, if coupled with China's expected 5% and 9% over the next few years and fairly conservative spending, would put China back in the black in no time. That's a lot different than the situation in Greece, where debt levels are equally high, but growth is nowhere in sight and lenders are pulling away. There's also the fact that, unlike in the U.S. and in Greece, China is toting around some $3 trillion in foreign exchange reserves, which makes it easy to raise money in a flash when times get tough.

But here's where things get tricky. For China to keep up its growth rate, its consumers must continue to spend. That's a tough bet if inflation continues to rise. Of course, Avent argues just the opposite. Inflation, combined with China's "repressed" financial system (it's not easy for the average Joe in China to get a good loan or find places other than housing to invest), allows the government to easily pay back creditors by siphoning off the savings of its people, he says. An interview I did last year with Princeton University's JC de Swaan explains how this works:

The government has historically focused on favoring the corporate sector, particularly on its exporters. A good example is the government controls on deposit yields and lending rates. Historically, China has had low deposit yields, which have predominantly hurt households because they're the savers. And they've had low lending rates, which have predominantly helped the corporate sector, and particularly many factories and exporters.

That may help out the government's balance sheet in a pinch, but it also leaves Chinese consumers struggling to spend more than they already do, which is the key component to China's growth. Meanwhile, China's biggest consumers, Europe and the U.S., are headed down the drain. A sharper slowdown in the West, combined with China's tricky leadership handover next year, could knock down China's growth rates a good deal lower than many expect. And if there's anything to be learned from Greece and the U.S., it's that growing your way out of debt doesn't always go as planned. China isn't Greece yet, but it isn't out of the clear either.

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In my view the Chinese needs to stop being like Americans that spends and spends on cars and homes that they don't really need. Thats how it happened when banks made sub prime loans to people who really can't afford the homes which led to the housing crisis and the economy as a whole.
 
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China is dependent on its exports to hit the 9% growth story. Any change in consumption patterns in US of A and Europe can sent alarm bells in China. If China's debts worsen then the world will witness a depression of a scale that was never seen in the history of man kind.
 
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For past 10 years I am hearing this story. Till it has not crashed, it has not crashed!
 
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Look, the truth is , i cannot even begin to imagine a world without China. It is undeniably, THE manufacturing powerhouse of the world. Tell me, after the collapse of China....who can possibly manufacture goods the way China does? Because of China , quality goods became affordable. Because of China, common man across the globe can now access modern technology. I dont like China. But i cannot live without China as it is today. This is the reality for most of us.
 
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Comparing China to Greece is futile. Chinese economy is far stronger and robust than Greece. I cannot imagine China defaulting its debt as Greece is doing.
 
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China is dependent on its exports to hit the 9% growth story. Any change in consumption patterns in US of A and Europe can sent alarm bells in China. If China's debts worsen then the world will witness a depression of a scale that was never seen in the history of man kind.

Although substantial portion of Chinese GDP comes from its export, its domestic consumption is as strong and getting stronger.
 
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When all financial insititutions are under government control and all lad is also....then I dont think this will ever happen.
 
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Central banks of China hold 1.16 trillion dollars of US External debt.

The author clearly has no clue about how the Chinese economy runs. Chinese economy runs on production and global demand. Currently most of their needs are in the infrastructure sector which is driving local demand - the greatest consumer is the government itself.

China has tightened grip on lending (it is monetary sovereign unlike Greece, which depends on the EU for its monetary policies) just as any other country would do if it has rising inflation (China had eased its lending policies in Apr , only to lead great inflation in the following months which required monetary tightening) . A simple take is from the ISLM model - an upward shift in the IS curve along a vertical LM curve will lead to higher interest rates (which is what China is doing), but no change in aggregate output

I would have posted a link here to give more details - but I need a minimum of 5 posts to post a link :/
 
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Central banks of China hold 1.16 trillion dollars of US External debt.

The author clearly has no clue about how the Chinese economy runs. This will explain it better. Chinese economy runs on production and global demand. Currently most of their needs are in the infrastructure sector which is driving local demand - the greatest consumer is the government itself.


I would have posted a link here to give more details - but I need a minimum of 5 posts to post a link :/


Good one:pop:
 
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cannot help LOL...

the US should be next the Greece's situation, 14 trillion debt will technically render the Federal Government to close.

I am confident that China is the LAST country in the world to be the next Greece.
 
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China is dependent on its exports to hit the 9% growth story. Any change in consumption patterns in US of A and Europe can sent alarm bells in China.

That already happened during the 2008 credit crunch.

They all said: "demand for Chinese exports in the West will collapse, and so will China".

Except that we continued to grow at almost a double-digit rate of growth. :lol:

The reason? If you check the actual numbers, exports only make up 27% of China's GDP (according to the World Bank).
 
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Since China is not a democratic country, and what is the purpose to compare us with a western democratic country? :what:

You should rather worry about your own national debt, since the deadline is till the August 2nd. :coffee:
 
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As the author notes, we have $3 trillion in currency reserves, which is twice the GDP of Russia. There is no way we can default with that.

This thread is run by the person in jealosy to China.....Everybody knowz that China works hard for what it earn..The US is a thug and robber cant sustain its debt cuz its not standing on its own feet but the borrowed feet.....whereas China is standing on its own feet.....:azn:
 
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