How China accumulated $28 trillion in debt in such a short time

[Solomon2]

Analysis is incomplete without considering the external/internal debt divide. How much money does China owe in dollars overseas? China's currency is not yet fully convertible so China can print money to relieve internal debts.

Also, a $26,000/per person debt may be high, but should still be sustainable - for China. China's GDP/person now exceeds $7,500/year. That's astounding when you consider that only forty years ago it was $300!

My main concerns have been that Chinese leaders lacked the confidence in their people to properly manage China's monetary reserves in the 1990s (helping create the credit bubble that burst in 2008), did not understand the importance of issuing yuan credits overseas, kept the one-child rule far too long, and rather than concentrate on corruption are succumbing to the temptation to initiate foreign military adventures to cover the Party's own weaknesses and excesses. Corruption and hubris in times of prosperity leading to break-up or defeat has been the Chinese curse for millennia and a wise leadership would recognize and battle this rather than go with the flow.

 

[Shotgunner51]

I have made a research and couldn't find that "total debt" statistic for Japan. Maybe Noımura should make a favor to Japan first and calculate it's own country's debt statistics.

Domestic credit to private sector (% of GDP) | Data | Table

Domestic credit provided by financial sector (% of GDP) | Data | Table

See who is on top Nomura analyst Wendy Liu?

Normally government debt is calculated and used as a valid statistic for the health of government finances. Yet in recent years, starting with China's economic development to be frank, we have a "total debt" frenzy. Total debt to gdp ratio is not calculated or considered by the prestigous organizations around the world. You have your inflation and interest rates to see the actual outcome from debt.

Well said, whenever China is concerned, there seems to be a "total debt" frenzy going on. Illiterate writers often fail to distinguish between international position vs domestic credit market, domestic credit to private sector vs government debt, domestic savings vs domestic credit, .... Even if these illiterate writers insist on this "total debt" hype to fool readers, did they compare across economies?

The even more funny part is some readers actually fall for these obvious mistakes, the level of stupidity is unbelievable.

 

[Defender@@]

How China accumulated $28 trillion in debt in such a short time

• Jim Edwards

REUTERS/StringerHEAVY LOAD: A passenger carries his belongings at a railway station in Kunming, Yunnan province.
Bank of America Merrill Lynch became the most recent financial institution to start sounding scared about China's debt.
While no one is panicking just yet, there sure are an increasing number of people — including analysts at UBS and Macquarie — who are talking about when it might be appropriate to consider panicking.
To recap, China's total debt is about $28 trillion, or roughly half the world's entire debt.
Until recently, most people have reassured themselves that Chinese debt isn't something to worry about because the economy is growing, which means it's easier to pay back as time goes by. Also, the debt is spread around in various sectors — corporate, consumer, and government — rather than in one systemically threatening toxic dump.
Now the Chinese economy is slowing. But China hasn't stopped adding more debt. About five years ago, Chinese debt levels began accelerating far faster than GDP was growing. In other words, as time goes by China adds more debt and becomes less and less able to pay it off.
Nomura analysts Wendy Liu and her team just did us all a huge favour by calculating all of China's debts, over time, in these two charts. We've added some highlights to draw your attention to the most dramatic bits.
Some Chinese companies have doubled their debt loads since 2010:

Nomura
When you add in government debt, China added 61 percentage points of debt to GDP in just the last 5 years:

Nomura
In 2005, China's debt was 164% of GDP. Now it's 236% of GDP. It's not the scale that's worrying. Many countries have debt that is twice GDP. It's the speed at which it is changing, compared to the slower pace of economic growth.
China's 'zombie' problem

REUTERS/Hannibal Hanschke
The fact that a lot of this debt is sitting in local government or state-owned enterprises has been reassuring, until now.
The assumption has been that government debt is the government's problem, not everyone else's. The government can let its "zombie" entities stumble on as debt-paying vehicles or maybe occasionally let a couple default without any systemic contagion.
But yesterday the Chinese government again began buying stocks to prop up its plummeting stock market. No one thinks that is sustainable. And my colleague Linette Lopez noted yesterday that there is a capital-flight "doomsday scenario" being floated by BAML which suggests that China only has about a year to a year and a half of currency reserves on hand if it needs to defend a run against the yuan.
So now that government debt doesn't look so isolated. China might need its money back, suddenly.
The problem with debt, even government debt, is that it isn't just an accounting problem. It's a real thing. Sure, the government may be forced to take a few haircuts on bad bets — but that will filter through the system, eventually. The government is a huge economic player in the Chinese economy. Bad debt won't just disappear into thin air.
The question is whether the effect of that debt can be smoothly managed away before things get worse.
NOW WATCH: China is immortalizing its founding leader with an enormous 121-foot gold-plated statue


China honors Mao Zedong with huge statue - Business Insider

China debt to GDP statistics - Business Insider

What a stupid analysis ? Why the hell they are taking into account all loans of China,,, If we take all loans of other countries then it would be way too high,,, for analysis of debt of a nation you have to compare public debt to gdp ratio which was around 41% last year,,, whereas of USA public debt to gdp is 106% ....

Miss-representation is at its height in this article ...

 

[Shotgunner51]

Analysis is incomplete without considering the external/internal debt divide. How much money does China owe in dollars overseas? China's currency is not yet fully convertible so China can print money to relieve internal debts.

Correct. The OP didn't mention external position, only internal. I suppose it's because maybe he knew that China has far bigger external assets than external liabilities, positive net international position. China (including HK, Taiwan) is the largest creditor nation in the world. China's external position is obviously not a "favorable" topic.

His "total debt" frenzy is only internal, which means domestic credit to private sector, plus government debt.

 

[Shotgunner51]

What a stupid analysis ? Why the hell they are taking into account all loans of China,,, If we take all loans of other countries then it would be way too high,,, for analysis of debt of a nation you have to compare public debt to gdp ratio which was around 41% last year,,, whereas of USA public debt to gdp is 106% ....

Miss-representation is at its height in this article ...

Exactly.

On government debt, analysis is simpler. If it's owned by its own citizens, then it's another form of household savings, otherwise it's an external liability. On its sustainability, gauge against interests rate and fiscal discipline (tax revenue, government expenditure). This indicator varies a lot across nations:

Country List Government Debt to GDP​

On domestic credit to private sector, analysis is far more complicated. The indicator (as % of GDP) also varies hugely from say 3.8% in Afghanistan, 4.9% in Sierra Leone, to 178.7% in Denmark, 187.6% in Japan:

Domestic credit to private sector (% of GDP) | Data | Table​

 

[Solomon2]

Exactly.

On government debt, analysis is simpler. If it's owned by its own citizens, then it's another form of household savings, otherwise it's an external liability. On its sustainability, gauge against interests rate and fiscal discipline (tax revenue, government expenditure)...On domestic credit to private sector, analysis is far more complicated...

You've left out liquidity. The Chinese gov't is vacuuming up liquidity right at the moment it's needed most, leading to a collapse of the stock market that could have been avoided with more prudent monetary management.

 

[Sanchez]

You've left out liquidity. The Chinese gov't is vacuuming up liquidity right at the moment it's needed most, leading to a collapse of the stock market that could have been avoided with more prudent monetary management.

Debt increase is a problem but not a big one in China. Chinese government has shown some panic signs and taken unnecessary actions to regulate the stock market. Now the market will be closed for （the following 4 trading days？） and maybe come some wise changes...

 

[Khan_patriot]

"
To recap, China's total debt is about $28 trillion, or roughly half the world's entire debt."

The author is an idiot, and anyone who didn't doubt this on the first read is likewise an idiot.

"$223.3 trillion: The total indebtedness of the world, including all parts of the public and private sectors, amounting to 313% of global gross domestic product."

Sorry for the layman question but I am not an economist
If the entire world is in debt who does it owe it to???
Aliens ???

 

[Solomon2]

Now the market will be closed for the following 4 trading days and maybe some wise changes..

It's like 1998: the PBC is succumbing to fear rather than acting boldly. Or else it's deliberate: rather than accept a much-needed market-based devaluation they are going to bring about a recession, which in China can mean war or revolution.

 

[Sanchez]

It's like 1998: the PBC is succumbing to fear rather than acting boldly. Or else it's deliberate: rather than accept a much-needed market-based devaluation they are going to bring about a recession, which in China can mean war or revolution.

Not that serious. The Chinese market was a bit artificially pushed over 3000 points and that encouraged small adventurers. The bigger losers on the market are small players and financial institutes owned by the government. Chinese economy is slowing down but it's too early to say it'd be a recession.

Chinese stock market is only one fourth of the US market size and the majority of the listed companies are state owned so far (SHSM). So the influence of the market to economy is smaller in China than in the US.

 

[mirage]

Not that serious. The Chinese market was a bit artificially pushed over 3000 points and that encouraged small adventurers. The bigger losers on the market are small players and financial institutes owned by the government. Chinese economy is slowing down but it's too early to say it'd be a recession.

Chinese stock market is only one fourth of the US market size and the majority of the listed companies are state owned so far (SHSM). So the influence of the market to economy is smaller in China than in the US.

sure , everything has been artificially pushed up , that is the real concern GDP also was artificially pushed up , thanks to huge investments in waste infrastructure . moreover around 4 trillion $ market capitalization wipe out during 2015 is not a small amount .

 

[Sanchez]

sure , everything has been artificially pushed up , that is the real concern GDP also was artificially pushed up , thanks to huge investments in waste infrastructure . moreover around 4 trillion $ market capitalization wipe out during 2015 is not a small amount .

You Indians won't be in a position to critize Chinese economy. It's our business and rational people from other bigger economies. Pls don't even bother to comment my post!

 

[Shotgunner51]

Sorry for the layman question but I am not an economist
If the entire world is in debt who does it owe it to???
Aliens ???

Most of us are layman bro! Let's put it simply, it's a zero sum game, the world cannot be indebted unless aliens show up. A debt for a borrower is an asset for the lender, so between nations, some are debtors, some are creditors.

But the entire world is a big market, or in fact many markets. Say you have surplus money (e.g. savings), someone else borrow from you (directly or through financial sector e.g. bank), deal done, a debt. When statistician sum up all the deals in the entire world, yes, a lot of debts. So simply put, debts are owned by savings.

 

[Solomon2]

Not that serious. The Chinese market was a bit artificially pushed over 3000 points...Chinese stock market is only one fourth of the US market size and the majority of the listed companies are state owned..

That's why I'm not so concerned about the stock market as I am about liquidity. The Chinese did all sorts of things in the run-up to putting the renminbi into the IMF's currency basket in November, creating liquidity pressure that caused businesses to stop spending, repay loans, and put money in other currencies. The effect was cushioned a bit by normal pre-Christmas liquidity increases by Western central banks. But in late December and January the Western cb liquidity increases reverse, while Chinese demand increases due to upcoming domestic holiday demands. The PBC should have increased liquidity massively a week ago but did not, hence the extreme pressure on the stock markets now, decreasing saver and business confidence further. It's a downward spiral that the PBC has very little time to stop and much to do in that time.

 

[Keel]

You've left out liquidity. The Chinese gov't is vacuuming up liquidity right at the moment it's needed most, leading to a collapse of the stock market that could have been avoided with more prudent monetary management.

Liquidity is a valid point and it is an important principle that most people dont realise it other than talking about this and that irrelevant ratios blah blah blah which are mostly used as some referencing benchmarks but to say it as "vacuuming" our resources for the market madness is too strong a word.

I am very sure we have a few more tricks up our sleeves that the amateurs are unaware of

.

 

[Khan_patriot]

Most of us are layman bro! Let's put it simply, it's a zero sum game, the world cannot be indebted unless aliens show up. A debt for a borrower is an asset for the lender, so between nations, some are debtors, some are creditors.

But the entire world is a big market, or in fact many markets. Say you have surplus money (e.g. savings), someone else borrow from you (directly or through financial sector e.g. bank), deal done, a debt. When statistician sum up all the deals in the entire world, yes, a lot of debts. So simply put, debts are owned by savings.

So if debts are owed to savings and most of the people have their saving in the various banking institutions so is it fair to assume that all debts are owed to international banks instead of countries