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Their economy is also massively indebted, they got hooked on debt to a degree many here would consider reckless. They've wasted a tremendous amount of money on

Their economy is also massively indebted, they got hooked on debt to a degree many here would consider reckless. They've wasted a tremendous amount of money on useless construction, which may be one downfall of a planned economy.

dekhn 7y ago
Agreed. I had a bunch of friends who visited ~5 years ago and were claiming US was so far behind in building that China was going to take over the world. Several went back recently and said "so many ghost towns, what happened?"
srajabi 7y ago
I was intrigued by your comment, so I went looking around: https://en.wikipedia.org/wiki/List_of_countries_by_external_debt https://en.wikipedia.org/wiki/List_of_countries_by_external_... It looks like their debt is only 15% of their GDP? I've heard the China <> Debt thing before and I don't understand it. Could you explain what you mean?
- bzbarsky 7y ago
  I'm by no means an expert, but my understanding is that China's debt problem is not external debt, but internal debt. To put what the more negative takes are saying in US-related terms it's as if the mortgage-lending practices of the mid-2000s were done on a much larger scale (involving not just housing loans but almost everything funded by borrowing, including industry, infrastructure, etc) and for a much longer time. As a result, there are lots of loans on the books that will never be paid off as things stand, and unlike the US there is no mechanism in the financial system to acknowledge any of that on a gradual basis (loan writedowns, etc), so the loans keep being rolled over instead. At some point, reality will need to be faced, at which point there will be either massive financial system issues, much worse than what the US had going on in 2008, or huge government bailouts. And in the latter case, that implies even more financial repression or taxation, or both, than is already going on, with resulting decreases in economic well-being for urban areas in China, which is the thing that _really_ worries the CCP. If the economy grows faster than the "bad loan" burden, then this problem is basically temporary, and rolling the loans over until the economy has grown enough to just deal with the issue is the right strategy. It's hard to come by plausibly correct (or even unbiased) estimates of either economic growth or the size of the "bad loan" burden, but almost all the estimates I've seen seem to agree that for a long time the "bad loan" burden was growing faster than the economy. Whether that's still the case, I don't know.

dekhn 7y ago

Agreed. I had a bunch of friends who visited ~5 years ago and were claiming US was so far behind in building that China was going to take over the world. Several went back recently and said "so many ghost towns, what happened?"

srajabi 7y ago

I was intrigued by your comment, so I went looking around: https://en.wikipedia.org/wiki/List_of_countries_by_external_debt https://en.wikipedia.org/wiki/List_of_countries_by_external_... It looks like their debt is only 15% of their GDP? I've heard the China <> Debt thing before and I don't understand it. Could you explain what you mean?

bzbarsky 7y ago
I'm by no means an expert, but my understanding is that China's debt problem is not external debt, but internal debt. To put what the more negative takes are saying in US-related terms it's as if the mortgage-lending practices of the mid-2000s were done on a much larger scale (involving not just housing loans but almost everything funded by borrowing, including industry, infrastructure, etc) and for a much longer time. As a result, there are lots of loans on the books that will never be paid off as things stand, and unlike the US there is no mechanism in the financial system to acknowledge any of that on a gradual basis (loan writedowns, etc), so the loans keep being rolled over instead. At some point, reality will need to be faced, at which point there will be either massive financial system issues, much worse than what the US had going on in 2008, or huge government bailouts. And in the latter case, that implies even more financial repression or taxation, or both, than is already going on, with resulting decreases in economic well-being for urban areas in China, which is the thing that _really_ worries the CCP. If the economy grows faster than the "bad loan" burden, then this problem is basically temporary, and rolling the loans over until the economy has grown enough to just deal with the issue is the right strategy. It's hard to come by plausibly correct (or even unbiased) estimates of either economic growth or the size of the "bad loan" burden, but almost all the estimates I've seen seem to agree that for a long time the "bad loan" burden was growing faster than the economy. Whether that's still the case, I don't know.