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China’s external debt to GDP is one of the lowest in the world, as is their debt per capita. They aren’t going to be ‘punished’ by creditors because they don’t

China’s external debt to GDP is one of the lowest in the world, as is their debt per capita. They aren’t going to be ‘punished’ by creditors because they don’t have significant debt. In fact, it’s more likely that China will be the one doing the punishing down the road.

dnomad 8y ago
This is what really irks the West. China did not allow themselves to be controlled by external debt like the Soviet Union. The Chinese have not only avoided debt slavery they have actually begun to weaponize their own debt power and such that they are now the world's largest sovereign lender.
- User23 8y ago
  The US doesn't borrow money from China. The US swaps treasuries for reserves with the Federal Reserve, which then sells those treasuries to primary dealers, who in turn sell them on the open market where anyone including foreign sovereigns like China, can buy them. In the unlikely event that the Federal Reserve failed to sell those instruments, they'd be left on their balance sheet and the interest would be remitted back to the US treasury. So long as there is any demand for US dollars though, there will always be a demand for interest bearing instruments that have near cash-like liquidity. Of course if you're referring to China's African colonies and their use of debt to control the local governments, then yes that's accurate.
  - sonnyblarney 8y ago
    It's the same thing as borrowing. US gov sells TBills, those TBills are bought by China. The transaction you described also translates government debt into currency, which China also sits on, so it's a kind of an exchange debt. So the US 'owes' China a gazillion dollars in services and stuff. One way or another.
    - User23 8y ago
      This is hard to wrap one's head around, so let me try again with some more detail. The US doesn't sell TBills. It creates those interest bearing IOUs ex nihilo, and then swaps them for reserves (also created ex nihilo) with the Federal Reserve. Primary Dealers buy treasuries from the Fed, not from the treasury.[1] The process is absolutely nothing like going to a bank or anyone else to borrow money. [1]https://en.wikipedia.org/wiki/Primary_dealer#Primary_dealers_in_the_United_States https://en.wikipedia.org/wiki/Primary_dealer#Primary_dealers...
      - sonnyblarney 8y ago
        Yes, I get it - but the mechanism does not matter: TBills and TBonds US government debt. US dollars are a form of debt to the US economy. So If you hold TBills/TBonds, the US government owes you money. If you hold USD, then the US economy owes you 'stuff' that you can exchange those dollars for. Anyone who holds TBills/TBonds is lending to the US Government. China holds a lot of both, ergo the US is indebted to them ... essentially, the US does borrow money from China. Though the sale may not be directly to China, ultimately, that's who's sitting on those bonds/cash.
        User23 8y ago
        "the mechanism does not matter" only if you have no interest in understanding how the system actually works. China isn't the US's lender and they do not make any loans. They can't foreclose, because no loan exists. All they can do is take their coupons or sell the security to someone else who will do the same. China can't starve the Treasury of money because the Treasury exclusively borrows reserves from the Federal Reserve. Also worth noting is that with the stroke of a pen Congress and the President acting in concert could restore the Treasury's power to spend money into existence directly. The US creates securities as a matter of public policy, not because it actually needs them to finance itself.
        TangoTrotFox 8y ago
        While everything you've said is accurate, I think you're intentionally skirting around the meat of the issue and that is the value of currency. That we can we can 'print' (colloquially speaking) as much money as we like is not in dispute. However, the consequences of choosing to do so are the heart of the matter. In the past our money was implicitly backed by oil thanks to our petro dollar arrangements, but those times are coming to an end. In the relatively near future our economic decisions will be left to stand, or fall, on their own merit - and substantial outstanding debt owned by foreign not-creditor-creditors will play a role in this.
myrandomcomment 8y ago
The issue is the China's corporate debt and off book debt to government owned / backed companies. They have $3.12T coming due in the next year. For example: https://www.bloomberg.com/news/articles/2018-07-18/a-china-borrower-s-11-billion-debt-mountain-comes-crashing-down https://www.bloomberg.com/news/articles/2018-07-18/a-china-b...
- chewz 8y ago
  > Designed to handle 320 trains a day, the Lanzhou-Xinjiang HSR currently has only eight daily services. “Because of this large amount of idle capacity, [the line’s] annual revenues are not enough to pay for its electricity costs,” said Prof Zhao. https://www.ft.com/content/ca28f58a-955d-11e8-b747-fb1e803ee64e https://www.ft.com/content/ca28f58a-955d-11e8-b747-fb1e803ee... [Paywall] > China’s huge leveraged bet on HSR has also generated many other benefits as it dramatically shrinks distances, transforms lives and boosts regional economies. The now three-hour, 1,100km train ride between Guangzhou and Wuhan used to take 11 hours, and tickets are now priced at just Rmb464. Annual travel on China’s HSR lines — 1.7bn trips — exceeds travel on conventional rail services. And about half of all HSR trips are, like Mr Liu’s, business-related. “When you think about that, a staggering 850m people are travelling [on HSR] to meet customers, get to their job, visit research centres and so on,” said Mr Ollivier. If China Railway’s HSR network is ultimately able to pay for itself, it will be a testament to the miracles that can happen when the Chinese Communist party marshals the vast financial resources at its disposal to serve a common good. But if it cannot, there is little doubt who will have to make up the difference. “China Railway’s debt is government-backed,” said Prof Li. “It won’t default.”

dnomad 8y ago

This is what really irks the West. China did not allow themselves to be controlled by external debt like the Soviet Union. The Chinese have not only avoided debt slavery they have actually begun to weaponize their own debt power and such that they are now the world's largest sovereign lender.

User23 8y ago
The US doesn't borrow money from China. The US swaps treasuries for reserves with the Federal Reserve, which then sells those treasuries to primary dealers, who in turn sell them on the open market where anyone including foreign sovereigns like China, can buy them. In the unlikely event that the Federal Reserve failed to sell those instruments, they'd be left on their balance sheet and the interest would be remitted back to the US treasury. So long as there is any demand for US dollars though, there will always be a demand for interest bearing instruments that have near cash-like liquidity. Of course if you're referring to China's African colonies and their use of debt to control the local governments, then yes that's accurate.
- sonnyblarney 8y ago
  It's the same thing as borrowing. US gov sells TBills, those TBills are bought by China. The transaction you described also translates government debt into currency, which China also sits on, so it's a kind of an exchange debt. So the US 'owes' China a gazillion dollars in services and stuff. One way or another.
  - User23 8y ago
    This is hard to wrap one's head around, so let me try again with some more detail. The US doesn't sell TBills. It creates those interest bearing IOUs ex nihilo, and then swaps them for reserves (also created ex nihilo) with the Federal Reserve. Primary Dealers buy treasuries from the Fed, not from the treasury.[1] The process is absolutely nothing like going to a bank or anyone else to borrow money. [1]https://en.wikipedia.org/wiki/Primary_dealer#Primary_dealers_in_the_United_States https://en.wikipedia.org/wiki/Primary_dealer#Primary_dealers...
    - sonnyblarney 8y ago
      Yes, I get it - but the mechanism does not matter: TBills and TBonds US government debt. US dollars are a form of debt to the US economy. So If you hold TBills/TBonds, the US government owes you money. If you hold USD, then the US economy owes you 'stuff' that you can exchange those dollars for. Anyone who holds TBills/TBonds is lending to the US Government. China holds a lot of both, ergo the US is indebted to them ... essentially, the US does borrow money from China. Though the sale may not be directly to China, ultimately, that's who's sitting on those bonds/cash.
      - User23 8y ago
        "the mechanism does not matter" only if you have no interest in understanding how the system actually works. China isn't the US's lender and they do not make any loans. They can't foreclose, because no loan exists. All they can do is take their coupons or sell the security to someone else who will do the same. China can't starve the Treasury of money because the Treasury exclusively borrows reserves from the Federal Reserve. Also worth noting is that with the stroke of a pen Congress and the President acting in concert could restore the Treasury's power to spend money into existence directly. The US creates securities as a matter of public policy, not because it actually needs them to finance itself.
        TangoTrotFox 8y ago
        While everything you've said is accurate, I think you're intentionally skirting around the meat of the issue and that is the value of currency. That we can we can 'print' (colloquially speaking) as much money as we like is not in dispute. However, the consequences of choosing to do so are the heart of the matter. In the past our money was implicitly backed by oil thanks to our petro dollar arrangements, but those times are coming to an end. In the relatively near future our economic decisions will be left to stand, or fall, on their own merit - and substantial outstanding debt owned by foreign not-creditor-creditors will play a role in this.

myrandomcomment 8y ago

The issue is the China's corporate debt and off book debt to government owned / backed companies. They have $3.12T coming due in the next year. For example: https://www.bloomberg.com/news/articles/2018-07-18/a-china-borrower-s-11-billion-debt-mountain-comes-crashing-down https://www.bloomberg.com/news/articles/2018-07-18/a-china-b...

chewz 8y ago
> Designed to handle 320 trains a day, the Lanzhou-Xinjiang HSR currently has only eight daily services. “Because of this large amount of idle capacity, [the line’s] annual revenues are not enough to pay for its electricity costs,” said Prof Zhao. https://www.ft.com/content/ca28f58a-955d-11e8-b747-fb1e803ee64e https://www.ft.com/content/ca28f58a-955d-11e8-b747-fb1e803ee... [Paywall] > China’s huge leveraged bet on HSR has also generated many other benefits as it dramatically shrinks distances, transforms lives and boosts regional economies. The now three-hour, 1,100km train ride between Guangzhou and Wuhan used to take 11 hours, and tickets are now priced at just Rmb464. Annual travel on China’s HSR lines — 1.7bn trips — exceeds travel on conventional rail services. And about half of all HSR trips are, like Mr Liu’s, business-related. “When you think about that, a staggering 850m people are travelling [on HSR] to meet customers, get to their job, visit research centres and so on,” said Mr Ollivier. If China Railway’s HSR network is ultimately able to pay for itself, it will be a testament to the miracles that can happen when the Chinese Communist party marshals the vast financial resources at its disposal to serve a common good. But if it cannot, there is little doubt who will have to make up the difference. “China Railway’s debt is government-backed,” said Prof Li. “It won’t default.”