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TLDR: return on investment in China has gone down a lot lately, and (according to the article) many Chinese companies which borrowed heavily to invest aren't no

TLDR: return on investment in China has gone down a lot lately, and (according to the article) many Chinese companies which borrowed heavily to invest aren't now able to repay the interests with their cash flow, and thus need to borrow even more to do that. This kind of situation was defined "Ponzi borrowing" by economist Hyman Minski [1], hence the sensationalist title. [1] https://en.wikipedia.org/wiki/Hyman_Minsky https://en.wikipedia.org/wiki/Hyman_Minsky

mahranch 11y ago
Yes, but how is the title sensationalist? I think it's quite accurate. They're borrowing money just to pay off the interest on previously borrowed money. 8 trillion Yuan just in 2015 alone. If anything, the title of the article may be understating the problem. Common sense should dictate that it's not a sustainable practice at any level.
- lawpoop 11y ago
  I think the problem may be that many people see the word 'Ponzi' and jump to the conclusion that it's a Ponzi _scheme_, rather than a Ponzi borrowing situation. Not that I'm the most financially savvy person, but I've never heard the phrase Ponzi borrowing before. Until I read the comments, I glossed it as 'Ponzi scheme'. It completely makes sense, once I read the comments.
  - deleted 11y ago
    [deleted]
- xenadu02 11y ago
  Eh, if inflation is high and the business is a real going concern (not completely useless and corrupt malinvestment) then you can get away with this. It's a dangerous game though.