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Debt is a contract. Important questions here: * Who owes to whom? * In what currency? * How could it be enforced? If China is in debt to China in Chinese cu

Debt is a contract. Important questions here: * Who owes to whom? * In what currency? * How could it be enforced? If China is in debt to China in Chinese currency the Chinese state has very good leverage to handle the situation. It could even make the debt disappear.

deleted 11y ago
[deleted]
cordite 11y ago
How does it work when China has bought a ton of US Debt in the past? (Though they apparently sold a bunch last year) [1] 1: http://www.bloomberg.com/news/articles/2015-10-18/china-s-selling-tons-of-u-s-debt-americans-couldn-t-care-less- http://www.bloomberg.com/news/articles/2015-10-18/china-s-se...
- static_noise 11y ago
  That probably means that China has no problems paying back debt denominated in US$. I don't know about the dynamics of this selloff. It's very hard to argue without seeing the whole picture but it indicates that _something_ is going on.
  - ktRolster 11y ago
    They've been selling US debt to keep the Yuan strong (ie, sell it in exchange for Yuan, and then 'remove' the Yuan from circulation)
jordanb 11y ago
The debt is substantially owed by local Chinese governments, SOEs and developers to Chinese banks. The central government could: 1) Transfer the debt to itself (a bailout) this leaves the central government with a very high (although sustainable) debt load but doesn't address any of the underlying problems. 2) Inflate the debt away. This doesn't address any of the underlying problems but it also impoverishes a lot of people who thought they were doing well. It also increases capital flight pressure. 3) "Stress test" the banks, requiring loans in arrears be paid, bad loans be written off, stopping the process of sending good money after bad. This is the only move that address the underlying problems, but it means the banks collapse (because they're already insolvent), the SOEs go bust, plus the problem of insolvent local governments would have to be addressed; people lose their old age pensions, massive unemployment. Plus most of the PRC's members wealth is in SOEs so this will affect them personally. Also the government will have to recapitalize the banks if it wants a financial sector at all (see option 2). 4) Claiming to do 3 while actually doing a combination of 1 and 2. This is probably what they will do and if they succeed, at the end of the day, the can will be a little further down the road.
- rwmj 11y ago
  I think you missed: 5) Do nothing about the problem while attempting to hide as much as possible, silencing any whistle-blowers or sources of accurate information.

deleted 11y ago

[deleted]

cordite 11y ago

How does it work when China has bought a ton of US Debt in the past? (Though they apparently sold a bunch last year) [1] 1: http://www.bloomberg.com/news/articles/2015-10-18/china-s-selling-tons-of-u-s-debt-americans-couldn-t-care-less- http://www.bloomberg.com/news/articles/2015-10-18/china-s-se...

static_noise 11y ago
That probably means that China has no problems paying back debt denominated in US$. I don't know about the dynamics of this selloff. It's very hard to argue without seeing the whole picture but it indicates that _something_ is going on.
- ktRolster 11y ago
  They've been selling US debt to keep the Yuan strong (ie, sell it in exchange for Yuan, and then 'remove' the Yuan from circulation)

jordanb 11y ago

The debt is substantially owed by local Chinese governments, SOEs and developers to Chinese banks. The central government could: 1) Transfer the debt to itself (a bailout) this leaves the central government with a very high (although sustainable) debt load but doesn't address any of the underlying problems. 2) Inflate the debt away. This doesn't address any of the underlying problems but it also impoverishes a lot of people who thought they were doing well. It also increases capital flight pressure. 3) "Stress test" the banks, requiring loans in arrears be paid, bad loans be written off, stopping the process of sending good money after bad. This is the only move that address the underlying problems, but it means the banks collapse (because they're already insolvent), the SOEs go bust, plus the problem of insolvent local governments would have to be addressed; people lose their old age pensions, massive unemployment. Plus most of the PRC's members wealth is in SOEs so this will affect them personally. Also the government will have to recapitalize the banks if it wants a financial sector at all (see option 2). 4) Claiming to do 3 while actually doing a combination of 1 and 2. This is probably what they will do and if they succeed, at the end of the day, the can will be a little further down the road.

rwmj 11y ago
I think you missed: 5) Do nothing about the problem while attempting to hide as much as possible, silencing any whistle-blowers or sources of accurate information.