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Most of their debt though is internal. It's chinese government owned banks lending to chinese government owned business. Why would any else care. It won't hurt

Most of their debt though is internal. It's chinese government owned banks lending to chinese government owned business. Why would any else care. It won't hurt most other people.

shagie 10y ago
If I recall correctly, its the ongoing aspect. There is debt that a government owned company has in a government owned bank. Writing that debt off (and not continuing to accrue more debt) would mean acknowledging that company _doesn't_ have any profit and would need to close (and fire its workers). As it is, the government owned businesses that have employees who do nothing are a form of welfare - its just they can't call it that - switching the columns from "employment and having revenue of X" to "payments to unemployed workers" could have a significant impact in the morale and productivity of people actually working. Lemon socialism ( https://en.wikipedia.org/wiki/Lemon_socialism https://en.wikipedia.org/wiki/Lemon_socialism ) and zombie company ( https://en.wikipedia.org/wiki/Zombie_company https://en.wikipedia.org/wiki/Zombie_company ). Granted, last year's news: [Massive layoffs coming as China confronts its overbuilt 'zombie economy'](http://www.cbc.ca/news/world/china-zombie-economy-layoffs-petricic-1.3473002 http://www.cbc.ca/news/world/china-zombie-economy-layoffs-pe...) has it at 6,000,000 workers which could cause some significant instability with it that the government is trying to manage (granted, its by ignoring it and continuing to pay the workers despite oversupply). Laying off 6M people will hurt many others and needs to be watched for when it does happen.
- ethbro 10y ago
  If true, the instability bodes poorly for the South China Sea situation and starting / becoming involved in a "small" conflict there.
rrggrr 10y ago
This is a false narrative. Chinese debt impacts FX reserves, foreign direct investment, flow of trade and other factors tremendously. It's simply not true that China domestic debt can be isolated.
simonh 10y ago
Supporting failing businesses sucks government resources away from spending on beneficial projects like infrastructure, health care and education. Writing off bad loans can allow reform of the failed business, selling assets, redeploying labour, allowing it to be restructured or supplanted by successful competitors, rather than allowed no it to limp on as if nothing was wrong. Ongoing inefficient businesses propped up by bad loans are also an abstacle to innovation and improvement in efficiency and services. Yes writing off the loans incurs a cost, but if the economy and tax base grows faster than the interest on th debts this isn't a long term problem. Eventually growth and inflation erode the problem away. But not recognising the bad loans means continuing to financially support the failing business which is an increasing ongoing cost.

Most of their debt though is internal. It's chinese government owned banks lending to chinese government owned business. Why would any else care. It won't hurt most other people.

shagie 10y ago

If I recall correctly, its the ongoing aspect. There is debt that a government owned company has in a government owned bank. Writing that debt off (and not continuing to accrue more debt) would mean acknowledging that company _doesn't_ have any profit and would need to close (and fire its workers). As it is, the government owned businesses that have employees who do nothing are a form of welfare - its just they can't call it that - switching the columns from "employment and having revenue of X" to "payments to unemployed workers" could have a significant impact in the morale and productivity of people actually working. Lemon socialism ( https://en.wikipedia.org/wiki/Lemon_socialism https://en.wikipedia.org/wiki/Lemon_socialism ) and zombie company ( https://en.wikipedia.org/wiki/Zombie_company https://en.wikipedia.org/wiki/Zombie_company ). Granted, last year's news: [Massive layoffs coming as China confronts its overbuilt 'zombie economy'](http://www.cbc.ca/news/world/china-zombie-economy-layoffs-petricic-1.3473002 http://www.cbc.ca/news/world/china-zombie-economy-layoffs-pe...) has it at 6,000,000 workers which could cause some significant instability with it that the government is trying to manage (granted, its by ignoring it and continuing to pay the workers despite oversupply). Laying off 6M people will hurt many others and needs to be watched for when it does happen.

ethbro 10y ago
If true, the instability bodes poorly for the South China Sea situation and starting / becoming involved in a "small" conflict there.

rrggrr 10y ago

This is a false narrative. Chinese debt impacts FX reserves, foreign direct investment, flow of trade and other factors tremendously. It's simply not true that China domestic debt can be isolated.

simonh 10y ago

Supporting failing businesses sucks government resources away from spending on beneficial projects like infrastructure, health care and education. Writing off bad loans can allow reform of the failed business, selling assets, redeploying labour, allowing it to be restructured or supplanted by successful competitors, rather than allowed no it to limp on as if nothing was wrong. Ongoing inefficient businesses propped up by bad loans are also an abstacle to innovation and improvement in efficiency and services. Yes writing off the loans incurs a cost, but if the economy and tax base grows faster than the interest on th debts this isn't a long term problem. Eventually growth and inflation erode the problem away. But not recognising the bad loans means continuing to financially support the failing business which is an increasing ongoing cost.