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It's all sovereign debt, denominated in a token they can create at will. It's not like a household with an out of control credit card habit.

westiseast 9y ago
That means they can't go bankrupt; it doesn't mean the debt isn't a problem.
seanmcdirmid 9y ago
Sure. But it still can't grow forever without dragging down the real economy, at some point soon growth has to stop, and then what?
- AlexCoventry 9y ago
  From the PRC's perspective, the yuan is a just a tool to stimulate productive activity in their population towards the goals expressed in state budgets. If they can muster the political will, they can simply levy highly progressive taxes to reduce inflation and keep on spending. There is nothing stopping them, ideologically.
  - seanmcdirmid 9y ago
    If growth is mostly currently debt fueled, that growth can easily stop and reverse when the debt is pulled back. Recession at best, depression at worst, definitely there will be a few crashes along the way. Do you think real estate can really be sustained at it's current levels? Much of it has been bought as a speculative asset (no property taxes makes that easy) with the idea that it can only keep going up because of urbanization. However, farmers are generally poor not rich, it is not clear where the "bigger idiots" are going to come from. China's tax burden is already high for those that pay them. Going after those that don't at the high end is difficult because they tend to be officials or highly connected to officials in the first place.
    - AlexCoventry 9y ago
      The purpose of the growth, from a governance perspective, is to keep the population satisfied through a rising standard of living, and to continue to develop the country through sane budget allocations. They can continue to do that using debt, because the only risk from doing so is inflation, which they can keep low with taxes on the present debt holders. The housing market may crash: I was talking about the claim that economy in general crashing. But I think the PRC might see a housing market crash as desirable, as it would raise the standard of living for most citizens. They certainly seem bent on slowing it down. https://www.reuters.com/article/us-china-economy-property-investment/china-july-property-investment-sales-slow-as-curbs-continue-to-bite-idUSKCN1AU08E https://www.reuters.com/article/us-china-economy-property-in... China does have economic problems, but they are more problems of political will, not intractable from a strictly economic perspective. The solution involves the country's elite taking a haircut.
      - seanmcdirmid 9y ago
        It is difficult to see a case where housing crashes and the economy in general doesn't. They see a housing crash as desirable, for sure, but too much economic activity right now is tied up in real estate and infrastructure investment, they know how painful it will be. So they keep pumping up housing....
- Sargos 9y ago
  That's not how government debt works. There is no ceiling on the amount of debt you can have except in extreme cases like 2-3x debt to GDP ratio which China is nowhere near. Government debt is really just a record keeping system for funding and not really debt like you and me have. Look up US debt and how it works to fund the economy.
  - seanmcdirmid 9y ago
    Velocity is important. China went from no debt to 2X in less than a decade. If they are 3X a few years from now, how will that work. They have to deleverage somehow, or at least stop the growth.
bzbarsky 9y ago
It's not all sovereign debt. The amount of debt owed by Chinese companies has also been exploding over the last few years. It's possible they're taking out all that debt to make productive investments, but the analyses I've seen suggest that there's way too much debt for that to be the case. Now maybe the argument is that in a crisis this would all become sovereign debt (i.e. the government would bail the companies out and assume their debts). But that has its own issues, including the need for higher taxation to service the debt.

westiseast 9y ago

That means they can't go bankrupt; it doesn't mean the debt isn't a problem.

seanmcdirmid 9y ago

Sure. But it still can't grow forever without dragging down the real economy, at some point soon growth has to stop, and then what?

AlexCoventry 9y ago
From the PRC's perspective, the yuan is a just a tool to stimulate productive activity in their population towards the goals expressed in state budgets. If they can muster the political will, they can simply levy highly progressive taxes to reduce inflation and keep on spending. There is nothing stopping them, ideologically.
- seanmcdirmid 9y ago
  If growth is mostly currently debt fueled, that growth can easily stop and reverse when the debt is pulled back. Recession at best, depression at worst, definitely there will be a few crashes along the way. Do you think real estate can really be sustained at it's current levels? Much of it has been bought as a speculative asset (no property taxes makes that easy) with the idea that it can only keep going up because of urbanization. However, farmers are generally poor not rich, it is not clear where the "bigger idiots" are going to come from. China's tax burden is already high for those that pay them. Going after those that don't at the high end is difficult because they tend to be officials or highly connected to officials in the first place.
  - AlexCoventry 9y ago
    The purpose of the growth, from a governance perspective, is to keep the population satisfied through a rising standard of living, and to continue to develop the country through sane budget allocations. They can continue to do that using debt, because the only risk from doing so is inflation, which they can keep low with taxes on the present debt holders. The housing market may crash: I was talking about the claim that economy in general crashing. But I think the PRC might see a housing market crash as desirable, as it would raise the standard of living for most citizens. They certainly seem bent on slowing it down. https://www.reuters.com/article/us-china-economy-property-investment/china-july-property-investment-sales-slow-as-curbs-continue-to-bite-idUSKCN1AU08E https://www.reuters.com/article/us-china-economy-property-in... China does have economic problems, but they are more problems of political will, not intractable from a strictly economic perspective. The solution involves the country's elite taking a haircut.
    - seanmcdirmid 9y ago
      It is difficult to see a case where housing crashes and the economy in general doesn't. They see a housing crash as desirable, for sure, but too much economic activity right now is tied up in real estate and infrastructure investment, they know how painful it will be. So they keep pumping up housing....
Sargos 9y ago
That's not how government debt works. There is no ceiling on the amount of debt you can have except in extreme cases like 2-3x debt to GDP ratio which China is nowhere near. Government debt is really just a record keeping system for funding and not really debt like you and me have. Look up US debt and how it works to fund the economy.
- seanmcdirmid 9y ago
  Velocity is important. China went from no debt to 2X in less than a decade. If they are 3X a few years from now, how will that work. They have to deleverage somehow, or at least stop the growth.

bzbarsky 9y ago

It's not all sovereign debt. The amount of debt owed by Chinese companies has also been exploding over the last few years. It's possible they're taking out all that debt to make productive investments, but the analyses I've seen suggest that there's way too much debt for that to be the case. Now maybe the argument is that in a crisis this would all become sovereign debt (i.e. the government would bail the companies out and assume their debts). But that has its own issues, including the need for higher taxation to service the debt.