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I don't get it. This article was confusing and badly written. The Chinese govt gave the money to local authorities to spend. Next, the article talks about bad

by iqster 15y ago

I don't get it. This article was confusing and badly written. The Chinese govt gave the money to local authorities to spend. Next, the article talks about bad debts showing up in audits. Was the money a straight out transfer? If so, this doesn't affect their debt position. Was the money supposed to be used for construction projects and not just used to pay down old debts? If so, this doesn't affect their debt position either. The article also talked about corruption and a "rigged system to guarantee bank profits". No details given about either issues.

RickHull 15y ago
> The Chinese govt gave the money to local authorities to spend. I believe that is a overly-simplistic, "net" explanation. I think it goes more like: 1. China's central bank grants credit (i.e. cheap loans) to big "national" banks 2. Big national banks grant credit to regional/provincial/municipal governments 3. Local governments spend on infrastructure (build it and they will come) 4. No one comes 5. ... 6. Profit? So the big banks have bad loans on their books, but the national government / central bank will surely bail them out.
- aquark 15y ago
  So is the question how do these loans appear on China's central bank's balance sheet? I am confused by reading this article: if part of the issue in the US is that China holds vast amounts of US debt, and now China is also highly leveraged, then who is left holding their debt?! What would be to problem with the Chinese central bank just writing off all the debt? I can see that the spending pattern may be unsustainable, but if you have been lending the money to yourself there is no-one left to be upset when you default.
  - junkbit 15y ago
    I think most of the world's debt is privately held. For instance the UK is the third largest owner of US debt after China and Japan, but we ourselves have a massive public debt.

by iqster 15y ago

RickHull 15y ago

> The Chinese govt gave the money to local authorities to spend. I believe that is a overly-simplistic, "net" explanation. I think it goes more like: 1. China's central bank grants credit (i.e. cheap loans) to big "national" banks 2. Big national banks grant credit to regional/provincial/municipal governments 3. Local governments spend on infrastructure (build it and they will come) 4. No one comes 5. ... 6. Profit? So the big banks have bad loans on their books, but the national government / central bank will surely bail them out.

aquark 15y ago
So is the question how do these loans appear on China's central bank's balance sheet? I am confused by reading this article: if part of the issue in the US is that China holds vast amounts of US debt, and now China is also highly leveraged, then who is left holding their debt?! What would be to problem with the Chinese central bank just writing off all the debt? I can see that the spending pattern may be unsustainable, but if you have been lending the money to yourself there is no-one left to be upset when you default.
- junkbit 15y ago
  I think most of the world's debt is privately held. For instance the UK is the third largest owner of US debt after China and Japan, but we ourselves have a massive public debt.