10 ms·

The Chinese Government Likely Borrowed More than the US in 2017

126 points by Four_Star 8y ago

adreamingsoul 8y ago
In economic terms, how is this sustainable?
- alexdrans 8y ago
  Endure the bubble, until you can conquer Australia and relieve the pressure
  - ggm 8y ago
    Why conquer when you can invest? They're investing. It's working. We're happy to have chinese investment in all spaces, ag, and mining, we buy the goods and we sell the dairy produce. The real threat is Tasmania: haven't you seen the wargames maps? We need those US-Chinese troops to fight back against the daemon armies from cradle mountain.
    - alexdrans 8y ago
      Investment doesn't buy you all the 'Living Space' you may want
      - ggm 8y ago
        I've taken the train across china from Hangzhou to Beijing and there is no lack of living space, or empty housing from the speculative bubble. The threat of south-irian is basically the classic yellow-peril threat model. Its a really bad argument. As long as we are happy to export tertiary education and then proffer immigration channels, there is no basis to argue the Chinese polity wants to invade: it can get people here legally, for good benefit both sides. Pleae, don't feed the racist troll. The chinese are not swamping us and they cannot cause earthquakes by jumping up and down at the same time.
        smacktoward 8y ago
        > I've taken the train across china from Hangzhou to Beijing and there is no lack of living space, or empty housing from the speculative bubble. The point of the parent's reference isn't to a lack of actual space, it's to Germany's complaint in the 1930s of not having enough Lebensraum: https://en.wikipedia.org/wiki/Lebensraum https://en.wikipedia.org/wiki/Lebensraum ... which was similarly spurious -- the Germans had plenty of room for their population too. Lebensraum wasn't about actual space, it was about imperalism, about the Germans feeling strong enough to grab territory from their neighbors just because they could. One could be forgiven for looking at China's military expansionism in the South China Sea, for instance, and thinking the Chinese polity is feeling the same way.
        ggm 8y ago
        Specious though the south china sea argument feels to us, Its entirely consistent with a long held vision of China and its sphere of influence. What rankles, is the extent to which the opposition to it, the open-seas sailing policy, is being taken by actors (the US, Australia) who chose otherwise to disregard mediation and international law in matters of their own spheres of influence: East Timor for instance. This is not whataboutism, its directly relevant, contradictory behaviour. The Chinese have a long standing stated claim to the spratleys (which btw, I think is entirely bogus) but in no sense simply emerged into a state of claiming them in recent times. The laws being used to push back, are entirely a product of the post-WWII polity, were an attempt to construct a legal mechanism to mediate between states, which is being (forcefully) applied here by some states, who choose to disregard the same legal basis when applied to cases of their own. Lebensraum was a manufactured need of political expediency and an explicitly expansionist act. The South China Sea is not lebensraum, its open-fishing rights, and over-flight and sailing rights, and mineral rights. It's also a vision of a defensive ring. You know, that domino theory we used to be sold about chinese expansionist policy in S.E. Asia? its being played in reverse: they need this barrier, because we are trying to re-apply opium war logic to opening chinese capital investment markets, and land in China...
      - bryanlarsen 8y ago
        They don't need space, they're rapidly creating tons of it in China -- people who move from the country to the city use far less area.
  - deleted 8y ago
    [deleted]
  - mlthoughts2018 8y ago
    Then they'll get 2 additional armies every single turn! And a territory card!
    - navaati 8y ago
      What is the reference here ? Is it the same reference as neighbour comment about Tasmania and daemon armies ?
      - ggm 8y ago
        My tasmania comment is about what the US-AU army wargames used to use as the hypothetical invader. they were briefly stupid and used a map of indonesia because of jokes about west irianjaya and 'south iriyan' -and then changed to use the map of tasmania (which btw, is a euphemism for female pubic hair) upside down as the notional invader. the other reference is to turn-by-turn games of war on maps (I think)
      - ttoinou 8y ago
        RISK game
      - Chilinot 8y ago
        The board game Risk.
      - danielvf 8y ago
        The cards reference is to the game of RISK. Owning every territory in the “Australian Content” gets the player a small bonus.
- jdmichal 8y ago
  Debt is a fixed number that doesn't expand as the economy does.
  - inetknght 8y ago
    Tell that to compound interest.
- fps_doug 8y ago
  It absolutely isn't. The funny part is, for the past 12+ years voices predicting an economic collapse of China have gotten stronger and stronger, but it just doesn't happen. Every time they passed some magic number in some statistic it was all "zomg collapse is imminent!" I guess with a government like they have you have greater possibilities to cover up and postpone the effects, but who knows how this will manifest. I'm hesitant to believe any current scenarios painted by western "experts" because they have basically been wrong for the past decade, but every time they're like "but this time it's for real!"
  - dnomad 8y ago
    Eh it's absolutely sustainable. China is a monetary sovereign. All of this debt is issued in a currency that they can literally create out of thin air. There is zero possiblity that China will default on this debt. And China has been very careful to avoid externally denominated debt. The only real risk here currency revulsion. At some point there is a risk that nobody will want the currency. But the risk of internal revulsion is low. Chinese citizens have to pay taxes and many other kinds of fees and fines in the currency. They have no choice. External revulsion is a threat but here again the Chinese have opted to buy out their external dependencies. This is why China wants to own all that farmland in Brazil. It never wants to find itself in a situation where it must buy dollars in order to buy soybeans and other critical food stuffs. People will go on and on about China's sovereign debt. They just don't get it. This is basic MMT (modern monetary theory). The bigger risk for China is that they grow too slowly not that they grow too fast.
    - frogpelt 8y ago
      Creating currency out of thin air also creates inflation. Inflation must be kept in check or bad things happen. Maybe the current levels are sustainable. But not all increases in deficit are sustainable.
      - dnomad 8y ago
        That's now how any of this works. That's certainly not how inflation works. At some point, particularly given the last 40 years of evidence to the contrary, people need to simply accept that monetary expansion does not "cause" inflation [1]. Inflation is not a monetary phenomenon at all. Inflation is a price level [2] phenomenon largely driven by trade imbalances. Inflation is about market power, or what some call pricing power. The common case here, btw, is when your external partners from whom you need to import critical goods get even a little bit pricing power then you will get inflation. China is seeking to own all its externals and deliberately suppress any such pricing power not driven by its own banks. [1] https://www.bloomberg.com/news/articles/2018-03-22/the-great-inflation-mystery https://www.bloomberg.com/news/articles/2018-03-22/the-great... [2] http://bilbo.economicoutlook.net/blog/?p=10554 http://bilbo.economicoutlook.net/blog/?p=10554
- moomin 8y ago
  Broadly, constant borrowing is sustainable, just look at any European economy. As long as your tax base grows faster than your interest payments there’s no unavoidable problem. This? It’s not sustainable. Sooner or later this will result in a correction. This could range from aggressive budgetary measures, an internal crisis all the way to China monetising its overseas investments (which are extremely extensive).
  - repolfx 8y ago
    European economies are hardly poster children for constant borrowing. Most of them have been in enforced austerity for years, and have only managed to avoid much tighter spending cuts because the ECB is funding governments through vast amounts of money printing (which boils down to confiscation of savings). Result: huge government spending overruns, ever-falling savings rates.
    - moomin 8y ago
      Erm... Spain and Greece has been in enforced austerity, no other countries I can think of. And neither have had typical, responsible borrowing patterns. (Nor does Italy, but it’s dodged that bullet.) (Ireland had some problems just after the crunch but a) entirely because they took on a bank they could have let fail and b) they’ve paid that off now.)
      - repolfx 8y ago
        Portugal, the UK, Italy to some extent (though nowhere near the level they need). Europe is basically a continent of governments trying to cut their spending levels, some with more success than others.
        moomin 8y ago
        The UK isn't in enforced austerity. Austerity is a political choice here (driven by a desire to eliminate the deficit), and a pretty bad one (the IMF said we should be spending more, also it looks like we will be irrespective of what the public wants soon because of Brexit). Basically, whilst the UK's economic woes are self-inflicted, over-borrowing isn't the cause of them. Italy definitely has over-borrowed, but its problems go way deeper than that and I wouldn't describe its spending right now as "austerity". Portugal, like Ireland, has already dug itself out of the hole. Going back to my original point: if increasing your revenue faster than increasing your interest payments, you can do this forever. Sure, the credit crunch gave some countries a shock, but you really should read up on exactly how egregious the Greek borrowing situation was. It was insanely unsustainable. Germany, Denmark, Sweden, France, Slovenia? They'll be fine.
- MLR 8y ago
  China is (officially) growing at ~7% per year right now, so adding $700 billion to their debt pile barely changes the debt/GDP ratio, it might even still fall but I'd have to check the exact figures.
  - tonyedgecombe 8y ago
    Does anybody believe that growth rate anymore?
    - Four_Star 8y ago
      Nobody
    - vkou 8y ago
      Anybody who has actually been to China in 1998, 2008, and 2018 would.
      - gruez 8y ago
        All that will tell you is "china grew a lot". It won't tell you whether they grew 10%/year or 8%/year.
        vkou 8y ago
        No, but it'll pretty definitively tell you that they are not 10x off published GDP numbers.
  - seanmcdirmid 8y ago
    The official reported rate is less than 7%, the actual rate is probably 5-6%. But the problem is the growth of debt, not its absolute value. They most definitely have to hit the brake on growth sometime soon, or they are screwed. Even the Chinese governmebt states this, we are only debating the consequences of hitting the brakes, not whether it will happen or not.
- deleted 8y ago
  [deleted]
- tempodox 8y ago
  It doesn't have to. It only has to hold while the current elite is around.
- crdoconnor 8y ago
  If a government prints its own currency there's not even a theoretical limit to the total amount it can borrow. There is a limit to the total rate of government spending - spending beyond the rate of the economy's ability to produce - which causes hyperinflation. That is unrelated to the deficit though (theoretically it could even happen in surplus e.g. if you destroyed all your factories and farms).
- swfsql 8y ago
  It's sustainable because they keep the money printing press running, which implies they force citizens to sustain (pay for) it. Even in the US, "lowering the printing speed, which is high", is considered a ""tightening""
Bucephalus355 8y ago
And this is the deficit we know about. In reality it could be much larger, something like 1000% of GDP. The situation is the same with China’s military budget. In reality it’s probably 2x or 3x larger than the official numbers we have.
- ggm 8y ago
  The thing is, they don't show the hardware which would go with the spend. The construction equipment used to occupy the Spratleys has to then be followed by new ships, new airplanes, new heavy armor. Domestically, the provinces are very powerful. the PLA is not out in force in complex, expensive hardware, its paramilitary presence which is not a huge increasing cost given mandatory post-university universal conscription. Missiles and Nuke are a fixed cost. TL;DR absent a plan for war (which they don't have, and show no signs of wanting) there is no visible basis to assume a huge hidden military budget.
  - microdrum 8y ago
    They are literally manufacturing islands in the ocean.
    - ggm 8y ago
      Cheaply btw. Pumping sand is not hard. And, they're doing it on existing reef structures. The sand only lasts because there is an anchor there. This is not primarily military budget, any more than the US army corps of construction is military budget when it builds dams and Levees in the USA mainland (which btw, it does, a lot) Military budget is materiel. Sand, even runways, is not Materiel.
      - seanmcdirmid 8y ago
        The only purpose for building those islands out is militarily. If it’s not coming out of the PLAN budget directly, I would be very surprised.
djhonson196 8y ago
China’s growth rate is now significantly faster than the US and might be China is planning to overtake US
sevensor 8y ago
So who's buying all that debt?
- mirekrusin 8y ago
  US - China’s and China - US’es.
  - aurailious 8y ago
    The majority of US debt is held domestically, same with China.
- ed_balls 8y ago
  What makes you think that the debt has to be bought?
  - vonmoltke 8y ago
    Government debt, much like large corporate debt, almost always takes the form of bond issues. By definition, to raise debt capital via a bond issue someone needs to buy those bonds. Buying bonds is buying debt. Thus, governments cannot raise money through debt issues if people are unwilling to buy the debt.
    - frogpelt 8y ago
      Exactly. And this is why credit ratings matter. Because for people to buy the bonds the credit rating needs to be high to keep the yield (interest) low. If a country receives a less-than-stellar credit rating, the only way they can entice people to buy their bonds is by offering higher yield (interest rate) which means they have to pay back more.
      - RobertoG 8y ago
        In July 2012 the credit rating for many Euro countries was low and the borrowing costs very high. Mario Draghi, the President of the Central European Bank (who can emit so many Euros as they wish with typing something in a computer) made a statement (1) that he will defend the Euro. The next day the debt problem was solved. 'The markets' know that governments that emit debt in their own currency, are not depending of ratings or people buying bonds because they control the currency. The European case is complicated because the Euro is kind of a foreign currency for the Euroarea, but the China case is obvious. (1). https://www.telegraph.co.uk/finance/financialcrisis/9428894/Debt-crisis-Mario-Draghi-pledges-to-do-whatever-it-takes-to-save-euro.html https://www.telegraph.co.uk/finance/financialcrisis/9428894/...
chvid 8y ago
China is still a developing nation. That means that China can invest in infrastructure (roads, trains, airports, education) which have high real return making the increase in debt much less of a problem. This is also the reason why China has grown persistently 7-10% over the past two decades compared to USA which have grown 2-3% in the same period. Per person China's GDP is less than a fifth of the US hinting that this still has some way to go.
- XorNot 8y ago
  This is skirting around the edge of an important point: increase in absolute debt level is fine in any economy, what's potential trouble is changes in the rate of debt increase - specifically vs GDP growth - because it affects the total disposable income you have to service it. Where China has a risk is if they can't transition to a developed country's style of debt spending where GDP growth is much lower. It's also where endemic corruption becomes a big problem.
- ihsw2 8y ago
  Using per person GDP when discussing China is a cruel joke. Like most usages of per person GDP in any country, it glosses over regional disparities and (more importantly) economic equality measures like Gini coefficient. Taking Gini coefficient into consideration, China still has a long way to go.
  - dpark 8y ago
    The point was that even based on GDP per capita, China still has a long way to go.
    - meiraleal 8y ago
      But the scale of China population is so that if they double their GDP per capita, they will have an upper and middle class population bigger than most if not all individual countries in the world (EDIT: except India).
  - moorhosj 8y ago
known 8y ago
External debt is just 14% http://www.usdebtclock.org/world-debt-clock.html http://www.usdebtclock.org/world-debt-clock.html
- dnomad 8y ago
  This is what all the China fear mongers don't get. China has in reality zero external debt when you consider their real, income-producing over seas investment. China's extraordinary growth is not being financed by overseas investors. (Just the opposite, China itself is aggressively investing over seas.) All of this is being financed by the Chinese people themselves. No other country in the world had been able to so successfully boot strap their own economy with so little help.
- swfsql 8y ago
  Internal or external, I don't see the difference. From the taxpayer perspective, they are the same.
wrong_variable 8y ago
It it like using LOC towards judging the complexity of a code base : "God 100K ! your code must be filled with so much boiler plate !" - During the Second World War Britain / US went deep in the red to fund their survival, I wonder if anyone though "We cannot afford to go into debt to defeat the Nazis !". - Debt and deficit by itself is neutral - being a creditor is not inherently a good thing just like being a debtor is not inherently a bad thing. - If you look at the list of countries that have the lowest debt / Gdp ratios you will find its mostly low income, low productively countries, the question is not "damn how do they not need credit !" but "why are creditors not willing provide credit to these countries". - A country with high deficit is also a country with either high FDI or high rate of internal investment, its just doesn't sell as good a headline to say that though. - For China is makes sense since they are quickly ageing, so the current cohort of working age people will have high savings to draw down from at old age, same for the US / Japan / EU. - The big question is what does the saving and investment get you ? Is it to fund foreign wars like Vietnam during Nixon, real estate speculation, education for the next generation ? - The world is awash with credit and savings due to rise in income across all of humanity, driving down interest rate, its a good time to be a debtor and a awful time to a creditor (only generally, if you are a creditor/debtor in the payday loan sector then the inverse applies ).
- ataturk 8y ago
  Yes! There was a strong anti-war movement in the US before Pearl Harbor. Americans did not want to incur debt to fight for Europe because of the Great Depression, and because Americans believed that Europe needed to solve its own problems, remembering World War I and the huge human toll of that war only one generation ago. I'm sure the British policy of appeasement was partially due to budgetary concerns. They walked the fine line until it was obvious the Germans were not going to let them be. And then, you know, Dunkirk and the Battle of Britain and the die was cast.
known 8y ago
US is exporting $500 billion currency to China; And China is investing that money back in https://en.wikipedia.org/wiki/United_States_Treasury_security https://en.wikipedia.org/wiki/United_States_Treasury_securit... resulting in $1,181 billion debt to USA
- seanmcdirmid 8y ago
  If you include HK and Taiwan, they own a whopping $1500 billion in US debt via treasuries. But these are just savings instruments for them, a way to deal with excess foreign reserves without messing with their own exchange rates. It isn’t like the USA is begging them to buy treasuries, more like treasuries are provided as a service that makes the dollar so useful in trade. The yuan does not provide the same service to other countries, nor could it since it isn’t fully convertible anyways.
  - known 8y ago
    Unlike Yuan, US$ is https://en.wikipedia.org/wiki/Petrocurrency https://en.wikipedia.org/wiki/Petrocurrency
    - seanmcdirmid 8y ago
      The dollar is the petrocurrency because it is fully convertible and because the US government will always trade it for treasuries (no matter how much), not the other way around. It is extremely safe and liquid, so everyone (even China) uses it for trade.
  - function_seven 8y ago
    $1,500 trillion? Did you mean to say $15 trillion, or am I misunderstanding?
    - seanmcdirmid 8y ago
      Typo-fixed.
swfsql 8y ago
The bigger debt wins, don't you know?
addicted 8y ago
I don’t know if this is true anymore, but isn’t Chinese private borrowing staggeringly low? And hasn’t American private borrowing jumped up again after the crash? Looking at public numbers by themselves does not tell much of a story.
coliveira 8y ago
China is growing faster than the US, and it is has an economy that is already at the same size, so it is quite natural that they need to borrow more.
KaoruAoiShiho 8y ago
ITT: Nobody knows what they're talking about. People need to stop assuming all governments work identically and that numbers are comparable in any way. In China local governments COLLECTS NO TAXES, thus they fund all their expenditures by debt. In 2 years there's going to be widespread tax reform and all this debt will be wiped away.
- icebraining 8y ago
  Who lends money to a local government which has no revenue?
  - seanmcdirmid 8y ago
    They make money by selling land, and they also get a smallish cut of the VAT (replacing business taxes they used to get). They also outsource their debt spending to locally controlled SOEs who theoretically should be able to make money by being an state-owned enterprise. Also, they make the state-owned banks lend to them regardless, at a low interest rate since there is an implicit garauntee they won’t default. It isn’t really sustainable. It is only a matter of time before China introduces a property tax to fund local governments.
    - paradite 8y ago
      According to Wikipedia local government collects taxes, including property tax: https://zh.m.wikipedia.org/wiki/地方税 https://zh.m.wikipedia.org/wiki/地方税
      - seanmcdirmid 8y ago
        ATM, property taxes only have limited rollout in Chongqing and Shanghai on second properties. See https://www.bloomberg.com/gadfly/articles/2018-03-08/don-t-bet-your-house-on-china-s-property-tax-just-yet https://www.bloomberg.com/gadfly/articles/2018-03-08/don-t-b....
  - bduerst 8y ago
socrates1998 8y ago
China, like all other indebted nations, will seem very stable and then it will collapse in a fury. Could happen in a year or 10 years, it's very hard to predict these things. China's solution has always been to growth itself out of problems. At some point, that becomes impossible.
- yellowstuff 8y ago
  It is not the case that nations with lots of debt always collapse. EG, since inception the US has always had debt at the Federal level, except when Andrew Jackson paid it off, which was economically disastrous and plunged the country into a 6 year long depression.
throwaway5752 8y ago
Almost nobody here is interpreting this correctly. Debt gets sold, and buyers are signaling that they believe they will be repaid in an adequate manner (stable government, currency) and that maintaining reserves to the currency of that nation is desirable. This is exactly what you expect to see happen as China further eclipses the US as the world's largest economy and the renminbi supplants the dollars as the choice of reserve currency.

126 points by Four_Star 8y ago

adreamingsoul 8y ago

In economic terms, how is this sustainable?

alexdrans 8y ago
Endure the bubble, until you can conquer Australia and relieve the pressure
- ggm 8y ago
  Why conquer when you can invest? They're investing. It's working. We're happy to have chinese investment in all spaces, ag, and mining, we buy the goods and we sell the dairy produce. The real threat is Tasmania: haven't you seen the wargames maps? We need those US-Chinese troops to fight back against the daemon armies from cradle mountain.
  - alexdrans 8y ago
    Investment doesn't buy you all the 'Living Space' you may want
    - ggm 8y ago
      I've taken the train across china from Hangzhou to Beijing and there is no lack of living space, or empty housing from the speculative bubble. The threat of south-irian is basically the classic yellow-peril threat model. Its a really bad argument. As long as we are happy to export tertiary education and then proffer immigration channels, there is no basis to argue the Chinese polity wants to invade: it can get people here legally, for good benefit both sides. Pleae, don't feed the racist troll. The chinese are not swamping us and they cannot cause earthquakes by jumping up and down at the same time.
      - smacktoward 8y ago
        > I've taken the train across china from Hangzhou to Beijing and there is no lack of living space, or empty housing from the speculative bubble. The point of the parent's reference isn't to a lack of actual space, it's to Germany's complaint in the 1930s of not having enough Lebensraum: https://en.wikipedia.org/wiki/Lebensraum https://en.wikipedia.org/wiki/Lebensraum ... which was similarly spurious -- the Germans had plenty of room for their population too. Lebensraum wasn't about actual space, it was about imperalism, about the Germans feeling strong enough to grab territory from their neighbors just because they could. One could be forgiven for looking at China's military expansionism in the South China Sea, for instance, and thinking the Chinese polity is feeling the same way.
        ggm 8y ago
        Specious though the south china sea argument feels to us, Its entirely consistent with a long held vision of China and its sphere of influence. What rankles, is the extent to which the opposition to it, the open-seas sailing policy, is being taken by actors (the US, Australia) who chose otherwise to disregard mediation and international law in matters of their own spheres of influence: East Timor for instance. This is not whataboutism, its directly relevant, contradictory behaviour. The Chinese have a long standing stated claim to the spratleys (which btw, I think is entirely bogus) but in no sense simply emerged into a state of claiming them in recent times. The laws being used to push back, are entirely a product of the post-WWII polity, were an attempt to construct a legal mechanism to mediate between states, which is being (forcefully) applied here by some states, who choose to disregard the same legal basis when applied to cases of their own. Lebensraum was a manufactured need of political expediency and an explicitly expansionist act. The South China Sea is not lebensraum, its open-fishing rights, and over-flight and sailing rights, and mineral rights. It's also a vision of a defensive ring. You know, that domino theory we used to be sold about chinese expansionist policy in S.E. Asia? its being played in reverse: they need this barrier, because we are trying to re-apply opium war logic to opening chinese capital investment markets, and land in China...
    - bryanlarsen 8y ago
      They don't need space, they're rapidly creating tons of it in China -- people who move from the country to the city use far less area.
- deleted 8y ago
  [deleted]
- mlthoughts2018 8y ago
  Then they'll get 2 additional armies every single turn! And a territory card!
  - navaati 8y ago
    What is the reference here ? Is it the same reference as neighbour comment about Tasmania and daemon armies ?
    - ggm 8y ago
      My tasmania comment is about what the US-AU army wargames used to use as the hypothetical invader. they were briefly stupid and used a map of indonesia because of jokes about west irianjaya and 'south iriyan' -and then changed to use the map of tasmania (which btw, is a euphemism for female pubic hair) upside down as the notional invader. the other reference is to turn-by-turn games of war on maps (I think)
    - ttoinou 8y ago
      RISK game
    - Chilinot 8y ago
      The board game Risk.
    - danielvf 8y ago
      The cards reference is to the game of RISK. Owning every territory in the “Australian Content” gets the player a small bonus.
jdmichal 8y ago
Debt is a fixed number that doesn't expand as the economy does.
- inetknght 8y ago
  Tell that to compound interest.
fps_doug 8y ago
It absolutely isn't. The funny part is, for the past 12+ years voices predicting an economic collapse of China have gotten stronger and stronger, but it just doesn't happen. Every time they passed some magic number in some statistic it was all "zomg collapse is imminent!" I guess with a government like they have you have greater possibilities to cover up and postpone the effects, but who knows how this will manifest. I'm hesitant to believe any current scenarios painted by western "experts" because they have basically been wrong for the past decade, but every time they're like "but this time it's for real!"
- dnomad 8y ago
  Eh it's absolutely sustainable. China is a monetary sovereign. All of this debt is issued in a currency that they can literally create out of thin air. There is zero possiblity that China will default on this debt. And China has been very careful to avoid externally denominated debt. The only real risk here currency revulsion. At some point there is a risk that nobody will want the currency. But the risk of internal revulsion is low. Chinese citizens have to pay taxes and many other kinds of fees and fines in the currency. They have no choice. External revulsion is a threat but here again the Chinese have opted to buy out their external dependencies. This is why China wants to own all that farmland in Brazil. It never wants to find itself in a situation where it must buy dollars in order to buy soybeans and other critical food stuffs. People will go on and on about China's sovereign debt. They just don't get it. This is basic MMT (modern monetary theory). The bigger risk for China is that they grow too slowly not that they grow too fast.
  - frogpelt 8y ago
    Creating currency out of thin air also creates inflation. Inflation must be kept in check or bad things happen. Maybe the current levels are sustainable. But not all increases in deficit are sustainable.
    - dnomad 8y ago
      That's now how any of this works. That's certainly not how inflation works. At some point, particularly given the last 40 years of evidence to the contrary, people need to simply accept that monetary expansion does not "cause" inflation [1]. Inflation is not a monetary phenomenon at all. Inflation is a price level [2] phenomenon largely driven by trade imbalances. Inflation is about market power, or what some call pricing power. The common case here, btw, is when your external partners from whom you need to import critical goods get even a little bit pricing power then you will get inflation. China is seeking to own all its externals and deliberately suppress any such pricing power not driven by its own banks. [1] https://www.bloomberg.com/news/articles/2018-03-22/the-great-inflation-mystery https://www.bloomberg.com/news/articles/2018-03-22/the-great... [2] http://bilbo.economicoutlook.net/blog/?p=10554 http://bilbo.economicoutlook.net/blog/?p=10554
moomin 8y ago
Broadly, constant borrowing is sustainable, just look at any European economy. As long as your tax base grows faster than your interest payments there’s no unavoidable problem. This? It’s not sustainable. Sooner or later this will result in a correction. This could range from aggressive budgetary measures, an internal crisis all the way to China monetising its overseas investments (which are extremely extensive).
- repolfx 8y ago
  European economies are hardly poster children for constant borrowing. Most of them have been in enforced austerity for years, and have only managed to avoid much tighter spending cuts because the ECB is funding governments through vast amounts of money printing (which boils down to confiscation of savings). Result: huge government spending overruns, ever-falling savings rates.
  - moomin 8y ago
    Erm... Spain and Greece has been in enforced austerity, no other countries I can think of. And neither have had typical, responsible borrowing patterns. (Nor does Italy, but it’s dodged that bullet.) (Ireland had some problems just after the crunch but a) entirely because they took on a bank they could have let fail and b) they’ve paid that off now.)
    - repolfx 8y ago
      Portugal, the UK, Italy to some extent (though nowhere near the level they need). Europe is basically a continent of governments trying to cut their spending levels, some with more success than others.
      - moomin 8y ago
        The UK isn't in enforced austerity. Austerity is a political choice here (driven by a desire to eliminate the deficit), and a pretty bad one (the IMF said we should be spending more, also it looks like we will be irrespective of what the public wants soon because of Brexit). Basically, whilst the UK's economic woes are self-inflicted, over-borrowing isn't the cause of them. Italy definitely has over-borrowed, but its problems go way deeper than that and I wouldn't describe its spending right now as "austerity". Portugal, like Ireland, has already dug itself out of the hole. Going back to my original point: if increasing your revenue faster than increasing your interest payments, you can do this forever. Sure, the credit crunch gave some countries a shock, but you really should read up on exactly how egregious the Greek borrowing situation was. It was insanely unsustainable. Germany, Denmark, Sweden, France, Slovenia? They'll be fine.
MLR 8y ago
China is (officially) growing at ~7% per year right now, so adding $700 billion to their debt pile barely changes the debt/GDP ratio, it might even still fall but I'd have to check the exact figures.
- tonyedgecombe 8y ago
  Does anybody believe that growth rate anymore?
  - Four_Star 8y ago
    Nobody
  - vkou 8y ago
    Anybody who has actually been to China in 1998, 2008, and 2018 would.
    - gruez 8y ago
      All that will tell you is "china grew a lot". It won't tell you whether they grew 10%/year or 8%/year.
      - vkou 8y ago
        No, but it'll pretty definitively tell you that they are not 10x off published GDP numbers.
- seanmcdirmid 8y ago
  The official reported rate is less than 7%, the actual rate is probably 5-6%. But the problem is the growth of debt, not its absolute value. They most definitely have to hit the brake on growth sometime soon, or they are screwed. Even the Chinese governmebt states this, we are only debating the consequences of hitting the brakes, not whether it will happen or not.
deleted 8y ago
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tempodox 8y ago
It doesn't have to. It only has to hold while the current elite is around.
crdoconnor 8y ago
If a government prints its own currency there's not even a theoretical limit to the total amount it can borrow. There is a limit to the total rate of government spending - spending beyond the rate of the economy's ability to produce - which causes hyperinflation. That is unrelated to the deficit though (theoretically it could even happen in surplus e.g. if you destroyed all your factories and farms).
swfsql 8y ago
It's sustainable because they keep the money printing press running, which implies they force citizens to sustain (pay for) it. Even in the US, "lowering the printing speed, which is high", is considered a ""tightening""

Bucephalus355 8y ago

And this is the deficit we know about. In reality it could be much larger, something like 1000% of GDP. The situation is the same with China’s military budget. In reality it’s probably 2x or 3x larger than the official numbers we have.

ggm 8y ago
The thing is, they don't show the hardware which would go with the spend. The construction equipment used to occupy the Spratleys has to then be followed by new ships, new airplanes, new heavy armor. Domestically, the provinces are very powerful. the PLA is not out in force in complex, expensive hardware, its paramilitary presence which is not a huge increasing cost given mandatory post-university universal conscription. Missiles and Nuke are a fixed cost. TL;DR absent a plan for war (which they don't have, and show no signs of wanting) there is no visible basis to assume a huge hidden military budget.
- microdrum 8y ago
  They are literally manufacturing islands in the ocean.
  - ggm 8y ago
    Cheaply btw. Pumping sand is not hard. And, they're doing it on existing reef structures. The sand only lasts because there is an anchor there. This is not primarily military budget, any more than the US army corps of construction is military budget when it builds dams and Levees in the USA mainland (which btw, it does, a lot) Military budget is materiel. Sand, even runways, is not Materiel.
    - seanmcdirmid 8y ago
      The only purpose for building those islands out is militarily. If it’s not coming out of the PLAN budget directly, I would be very surprised.

djhonson196 8y ago

China’s growth rate is now significantly faster than the US and might be China is planning to overtake US

sevensor 8y ago

So who's buying all that debt?

mirekrusin 8y ago
US - China’s and China - US’es.
- aurailious 8y ago
  The majority of US debt is held domestically, same with China.
ed_balls 8y ago
What makes you think that the debt has to be bought?
- vonmoltke 8y ago
  Government debt, much like large corporate debt, almost always takes the form of bond issues. By definition, to raise debt capital via a bond issue someone needs to buy those bonds. Buying bonds is buying debt. Thus, governments cannot raise money through debt issues if people are unwilling to buy the debt.
  - frogpelt 8y ago
    Exactly. And this is why credit ratings matter. Because for people to buy the bonds the credit rating needs to be high to keep the yield (interest) low. If a country receives a less-than-stellar credit rating, the only way they can entice people to buy their bonds is by offering higher yield (interest rate) which means they have to pay back more.
    - RobertoG 8y ago
      In July 2012 the credit rating for many Euro countries was low and the borrowing costs very high. Mario Draghi, the President of the Central European Bank (who can emit so many Euros as they wish with typing something in a computer) made a statement (1) that he will defend the Euro. The next day the debt problem was solved. 'The markets' know that governments that emit debt in their own currency, are not depending of ratings or people buying bonds because they control the currency. The European case is complicated because the Euro is kind of a foreign currency for the Euroarea, but the China case is obvious. (1). https://www.telegraph.co.uk/finance/financialcrisis/9428894/Debt-crisis-Mario-Draghi-pledges-to-do-whatever-it-takes-to-save-euro.html https://www.telegraph.co.uk/finance/financialcrisis/9428894/...

chvid 8y ago

China is still a developing nation. That means that China can invest in infrastructure (roads, trains, airports, education) which have high real return making the increase in debt much less of a problem. This is also the reason why China has grown persistently 7-10% over the past two decades compared to USA which have grown 2-3% in the same period. Per person China's GDP is less than a fifth of the US hinting that this still has some way to go.

XorNot 8y ago
This is skirting around the edge of an important point: increase in absolute debt level is fine in any economy, what's potential trouble is changes in the rate of debt increase - specifically vs GDP growth - because it affects the total disposable income you have to service it. Where China has a risk is if they can't transition to a developed country's style of debt spending where GDP growth is much lower. It's also where endemic corruption becomes a big problem.
ihsw2 8y ago
Using per person GDP when discussing China is a cruel joke. Like most usages of per person GDP in any country, it glosses over regional disparities and (more importantly) economic equality measures like Gini coefficient. Taking Gini coefficient into consideration, China still has a long way to go.
- dpark 8y ago
  The point was that even based on GDP per capita, China still has a long way to go.
  - meiraleal 8y ago
    But the scale of China population is so that if they double their GDP per capita, they will have an upper and middle class population bigger than most if not all individual countries in the world (EDIT: except India).
- moorhosj 8y ago

known 8y ago

External debt is just 14% http://www.usdebtclock.org/world-debt-clock.html http://www.usdebtclock.org/world-debt-clock.html

dnomad 8y ago
This is what all the China fear mongers don't get. China has in reality zero external debt when you consider their real, income-producing over seas investment. China's extraordinary growth is not being financed by overseas investors. (Just the opposite, China itself is aggressively investing over seas.) All of this is being financed by the Chinese people themselves. No other country in the world had been able to so successfully boot strap their own economy with so little help.
swfsql 8y ago
Internal or external, I don't see the difference. From the taxpayer perspective, they are the same.

wrong_variable 8y ago

It it like using LOC towards judging the complexity of a code base : "God 100K ! your code must be filled with so much boiler plate !" - During the Second World War Britain / US went deep in the red to fund their survival, I wonder if anyone though "We cannot afford to go into debt to defeat the Nazis !". - Debt and deficit by itself is neutral - being a creditor is not inherently a good thing just like being a debtor is not inherently a bad thing. - If you look at the list of countries that have the lowest debt / Gdp ratios you will find its mostly low income, low productively countries, the question is not "damn how do they not need credit !" but "why are creditors not willing provide credit to these countries". - A country with high deficit is also a country with either high FDI or high rate of internal investment, its just doesn't sell as good a headline to say that though. - For China is makes sense since they are quickly ageing, so the current cohort of working age people will have high savings to draw down from at old age, same for the US / Japan / EU. - The big question is what does the saving and investment get you ? Is it to fund foreign wars like Vietnam during Nixon, real estate speculation, education for the next generation ? - The world is awash with credit and savings due to rise in income across all of humanity, driving down interest rate, its a good time to be a debtor and a awful time to a creditor (only generally, if you are a creditor/debtor in the payday loan sector then the inverse applies ).

ataturk 8y ago
Yes! There was a strong anti-war movement in the US before Pearl Harbor. Americans did not want to incur debt to fight for Europe because of the Great Depression, and because Americans believed that Europe needed to solve its own problems, remembering World War I and the huge human toll of that war only one generation ago. I'm sure the British policy of appeasement was partially due to budgetary concerns. They walked the fine line until it was obvious the Germans were not going to let them be. And then, you know, Dunkirk and the Battle of Britain and the die was cast.

known 8y ago

US is exporting $500 billion currency to China; And China is investing that money back in https://en.wikipedia.org/wiki/United_States_Treasury_security https://en.wikipedia.org/wiki/United_States_Treasury_securit... resulting in $1,181 billion debt to USA

seanmcdirmid 8y ago
If you include HK and Taiwan, they own a whopping $1500 billion in US debt via treasuries. But these are just savings instruments for them, a way to deal with excess foreign reserves without messing with their own exchange rates. It isn’t like the USA is begging them to buy treasuries, more like treasuries are provided as a service that makes the dollar so useful in trade. The yuan does not provide the same service to other countries, nor could it since it isn’t fully convertible anyways.
- known 8y ago
  Unlike Yuan, US$ is https://en.wikipedia.org/wiki/Petrocurrency https://en.wikipedia.org/wiki/Petrocurrency
  - seanmcdirmid 8y ago
    The dollar is the petrocurrency because it is fully convertible and because the US government will always trade it for treasuries (no matter how much), not the other way around. It is extremely safe and liquid, so everyone (even China) uses it for trade.
- function_seven 8y ago
  $1,500 trillion? Did you mean to say $15 trillion, or am I misunderstanding?
  - seanmcdirmid 8y ago
    Typo-fixed.

swfsql 8y ago

The bigger debt wins, don't you know?

addicted 8y ago

I don’t know if this is true anymore, but isn’t Chinese private borrowing staggeringly low? And hasn’t American private borrowing jumped up again after the crash? Looking at public numbers by themselves does not tell much of a story.

coliveira 8y ago

China is growing faster than the US, and it is has an economy that is already at the same size, so it is quite natural that they need to borrow more.

KaoruAoiShiho 8y ago

ITT: Nobody knows what they're talking about. People need to stop assuming all governments work identically and that numbers are comparable in any way. In China local governments COLLECTS NO TAXES, thus they fund all their expenditures by debt. In 2 years there's going to be widespread tax reform and all this debt will be wiped away.

icebraining 8y ago
Who lends money to a local government which has no revenue?
- seanmcdirmid 8y ago
  They make money by selling land, and they also get a smallish cut of the VAT (replacing business taxes they used to get). They also outsource their debt spending to locally controlled SOEs who theoretically should be able to make money by being an state-owned enterprise. Also, they make the state-owned banks lend to them regardless, at a low interest rate since there is an implicit garauntee they won’t default. It isn’t really sustainable. It is only a matter of time before China introduces a property tax to fund local governments.
  - paradite 8y ago
    According to Wikipedia local government collects taxes, including property tax: https://zh.m.wikipedia.org/wiki/地方税 https://zh.m.wikipedia.org/wiki/地方税
    - seanmcdirmid 8y ago
      ATM, property taxes only have limited rollout in Chongqing and Shanghai on second properties. See https://www.bloomberg.com/gadfly/articles/2018-03-08/don-t-bet-your-house-on-china-s-property-tax-just-yet https://www.bloomberg.com/gadfly/articles/2018-03-08/don-t-b....
- bduerst 8y ago

socrates1998 8y ago

China, like all other indebted nations, will seem very stable and then it will collapse in a fury. Could happen in a year or 10 years, it's very hard to predict these things. China's solution has always been to growth itself out of problems. At some point, that becomes impossible.

yellowstuff 8y ago
It is not the case that nations with lots of debt always collapse. EG, since inception the US has always had debt at the Federal level, except when Andrew Jackson paid it off, which was economically disastrous and plunged the country into a 6 year long depression.

throwaway5752 8y ago

Almost nobody here is interpreting this correctly. Debt gets sold, and buyers are signaling that they believe they will be repaid in an adequate manner (stable government, currency) and that maintaining reserves to the currency of that nation is desirable. This is exactly what you expect to see happen as China further eclipses the US as the world's largest economy and the renminbi supplants the dollars as the choice of reserve currency.