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China is in deep trouble; it has a total debt to GDP ratio of 282%, the highest compared to the other big gdp countries. (http://bloom.bg/1evYSQ5 http://bloom.b

China is in deep trouble; it has a total debt to GDP ratio of 282%, the highest compared to the other big gdp countries. (http://bloom.bg/1evYSQ5 http://bloom.bg/1evYSQ5). The housing bubble has already burst in the 3rd and 2nd tier cities in China, and the 1st tier cities are close to bursting. And the shanghai stock market is close to retracing back to 2000, since the current stock market has a p/e ratio that's 41% higher than that of US's 2000 dot com market. (http://bloom.bg/1HNgqA4 http://bloom.bg/1HNgqA4) When (not if) the china's stock market collapses, and the capital flight from China accelerates (estimated 600 Billion a year currently http://bit.ly/1NJQuIX http://bit.ly/1NJQuIX), then China is going to be permanent decline for the next 10-20 years. It would be anyone's guess what China will do then, since it will inevitably suffer massive internal unrest, due to the fact that it's ruled by a bunch of dictators. EDIT: China seems to be following the same path as Japan in 1990, except China has really screwed up their environment and rich people really want to leave the country.

imron 11y ago
People have been predicting 'The coming collapse of China' (https://en.wikipedia.org/wiki/The_Coming_Collapse_of_China https://en.wikipedia.org/wiki/The_Coming_Collapse_of_China) for well over a decade now, and the world is still waiting with bated breath. I mean a stopped clock will still be correct at least twice a day so I'm sure the naysayers will be correct eventually too. Anyway, I doubt China will suffer massive internal unrest, because those dictators aren't as dictatorial as you might believe and because most of the Chinese population generally support their government, at least in principle, and see instances of abuse and corruption as 'bad apples' spoiling the bunch rather than any sort of problem with the system or government itself.
- kanagawa 11y ago
  In fairness, the tacit Sino-American currency union has propped up Chinese industry since the Nixon Era. Predicting that the U.S. would eventually fatigue of this arrangement wasn't totally insane. Those folks just didn't appreciate that the U.S. and China were going to keep trucking along until China's population was well and truly urbanized. China just cracked the 50% urbanization ratio in the last couple of years, so who knows if the government there will remain motivated to drag peasants into the cities, or not.
coenhyde 11y ago
That is one outcome, assuming China tries to repay their debts. And as you are aware that hasn't worked out very well for Japan. If I was China and shit hits the fan, I would declare bankruptcy. It would hurt everyone but a shock like that probably has less chance of triggering a revolution than 20 years of decline.
- adventured 11y ago
  In the case of both Japan and China, most of their debt is held internally. That's why Japan is debasing the Yen, instead of performing a traditional default. They're unable to afford their debt, but if they just outright default, that will hammer their economy in one big hit - the creditors are the Japanese people. The Yen debasement hits them as well, and reduces the real value of the debt, but the premise is it's a gradual process they can adjust to over time (and the politicians get to lie about what's happening, another reason they all universally prefer inflationary schemes).
yishanl 11y ago
I think there's a ton of economic incentive for the rich to leave China and move to the US. In fact, I'd argue it's happening now already, regardless of the performance of the Chinese economy. Some observations: - The luxury goods that the rich in China are looking for are much cheaper here in US. The international students I know at school go on insane shopping sprees at the Apple/Sony/Microsoft stores since how "cheap" all the products are compared to the 1.5-2+X markups they have to pay back home. I've seen some classmates fill their suitcases with luxury brand clothing, Apple computers, iPads, Playstations, Xbox, to all bring home and share with their families. - Assets in the US are much more appealing options in terms of investments, especially real estate/property. There's been a lot of stuff written up in NYT about this. I've seen the same things here in South Bay (Mountain View, Cupertino) where brand new townhouses get snatched up instantly by wealthy families from China that can commit that much $ in such a short amount of time. Being able to pay for your house in cash moves you towards the front of the line. - Avoiding the whole "corrupted officials with lots of $ in bribes" anecdote (despite it being somewhat true from the crazy stories that I've heard from friends in China), it is much easier to spend the money here without worry of alerting the Chinese government. Especially if you're paying for a lot of your things in cash. Spending money in a lavish manner in China raises a lot of eyebrows. - Not too knowledgable on this aspect, but apparently there's the loophole where if you bring aging parents in China over to live in America, they can qualify for senior benefits from the US government. They come, despite never having worked in the US, and get monthly checks to cash that are substantial enough to live on. Don't know enough about this to elaborate and I'm a little skeptical about this, but have heard a lot about this. - America is so much more attractive than China. A lot of the wealthy international students I met in college had very tracked and relatively stress-free lives growing up. They never had to study for or take the gaokao, which is the infamous college entrance exam, since they knew from early on that they would be coming to the US for their college education. A lot of them do try and swing for jobs here after graduation as well, since the pay is substantially higher than in China. Heard this sentiment from a lot of Hong Kong residents. Curious if anyone has heard/observed similar.
- akssri 11y ago
  > 1.5-2+X markups they have to pay back home I'm surprised to hear that, esp. since much of it is actually manufactured there.
WoodenChair 11y ago
There's a lot of hyperbole in this post. The graph you link to of debt-to-GDP is actually very similar in China (282), South Korea (286), Australia (274), USA (269), Germany (258), and Canada (247). And for the record, South Korea's is higher than China's according to that graph. China's is more heavily weighted in "non-financial corporate" which is interesting. And the shanghai stock market is not "close to retracing back to 2000." This graph shows, it's well above that: http://www.tradingeconomics.com/charts/china-stock-market.png?s=ssecomposite&d1=20000101&d2=20151231 http://www.tradingeconomics.com/charts/china-stock-market.pn... You're assuming both a continued free-fall at the same rates and also that p/e ratios in China mean the same thing as they did for .com companies in 2000 in USA. Any market newbie will tell you that what a "normal" p/e ratio is will differ greatly by sector even within the same economy. China's may be out of whack, but it's not fair to make an arbitrary comparison. I'm no China apologist, but making predictions of 10-20 years of decline with an authoritative tone is wrong given the facts you presented.
- seanmcdirmid 11y ago
  sharetea, your comment was killed for some reason.
- Gibbon1 11y ago
  I think hysteria would be warranted if the Chinese government were to take a Schumpeter/Hayek/Mellon liquidationist response to the collapse of the market bubble (see the US/Europe circa 1929). Why yes then you would have contagion spreading out into the real economy and a long depression. I'm thinking not. Instead I the Chinese central bank will inject liquidity again, much to the horror of the WSJ Editorial board who will again sternly warn that such actions, mark their words! come to an bad end! snort
- sharetea 11y ago
  My reason for saying 10-20 years was based on the similarity of Japan in 1990 and China today. That is, they're both exporting country that has an aging demographic which likes to save, has a small consumer base compared to export, and is losing export share as production moves out of country to other cheaper countries. And they both choose to save the banking system instead of letting it self correct.
nkozyra 11y ago
Why do people continue to use aggregate debt (including domestic bond debt and outstanding liabilities) to present GDP ratio as though it is a meaningful harbinger? Any non-superficial analysis of what that entails and means should show you this is - while not entirely irrelevant - mostly meaningless as an indicator of economic health.
- irln 11y ago
  Non-sarcastic question, what are the indicators that you don't find mostly meaningless when it comes to analyzing China?
- repsilat 11y ago
  > mostly meaningless Well, you have to know at what interest rate the country borrows, and have an idea about the country's deficit and rate of GDP growth to know how sustainable the debt is, I suppose, but it's a pretty important number nevertheless...
kev6168 11y ago
many shocking claims in the post, "deep trouble", "has already burst", "collapses", " permanent decline", "inevitably suffer", "massive internal unrest", "has really screwed up", ... This assertiveness on something so complex is not productive and helpful.

imron 11y ago

People have been predicting 'The coming collapse of China' (https://en.wikipedia.org/wiki/The_Coming_Collapse_of_China https://en.wikipedia.org/wiki/The_Coming_Collapse_of_China) for well over a decade now, and the world is still waiting with bated breath. I mean a stopped clock will still be correct at least twice a day so I'm sure the naysayers will be correct eventually too. Anyway, I doubt China will suffer massive internal unrest, because those dictators aren't as dictatorial as you might believe and because most of the Chinese population generally support their government, at least in principle, and see instances of abuse and corruption as 'bad apples' spoiling the bunch rather than any sort of problem with the system or government itself.

kanagawa 11y ago
In fairness, the tacit Sino-American currency union has propped up Chinese industry since the Nixon Era. Predicting that the U.S. would eventually fatigue of this arrangement wasn't totally insane. Those folks just didn't appreciate that the U.S. and China were going to keep trucking along until China's population was well and truly urbanized. China just cracked the 50% urbanization ratio in the last couple of years, so who knows if the government there will remain motivated to drag peasants into the cities, or not.

coenhyde 11y ago

That is one outcome, assuming China tries to repay their debts. And as you are aware that hasn't worked out very well for Japan. If I was China and shit hits the fan, I would declare bankruptcy. It would hurt everyone but a shock like that probably has less chance of triggering a revolution than 20 years of decline.

adventured 11y ago
In the case of both Japan and China, most of their debt is held internally. That's why Japan is debasing the Yen, instead of performing a traditional default. They're unable to afford their debt, but if they just outright default, that will hammer their economy in one big hit - the creditors are the Japanese people. The Yen debasement hits them as well, and reduces the real value of the debt, but the premise is it's a gradual process they can adjust to over time (and the politicians get to lie about what's happening, another reason they all universally prefer inflationary schemes).

yishanl 11y ago

I think there's a ton of economic incentive for the rich to leave China and move to the US. In fact, I'd argue it's happening now already, regardless of the performance of the Chinese economy. Some observations: - The luxury goods that the rich in China are looking for are much cheaper here in US. The international students I know at school go on insane shopping sprees at the Apple/Sony/Microsoft stores since how "cheap" all the products are compared to the 1.5-2+X markups they have to pay back home. I've seen some classmates fill their suitcases with luxury brand clothing, Apple computers, iPads, Playstations, Xbox, to all bring home and share with their families. - Assets in the US are much more appealing options in terms of investments, especially real estate/property. There's been a lot of stuff written up in NYT about this. I've seen the same things here in South Bay (Mountain View, Cupertino) where brand new townhouses get snatched up instantly by wealthy families from China that can commit that much $ in such a short amount of time. Being able to pay for your house in cash moves you towards the front of the line. - Avoiding the whole "corrupted officials with lots of $ in bribes" anecdote (despite it being somewhat true from the crazy stories that I've heard from friends in China), it is much easier to spend the money here without worry of alerting the Chinese government. Especially if you're paying for a lot of your things in cash. Spending money in a lavish manner in China raises a lot of eyebrows. - Not too knowledgable on this aspect, but apparently there's the loophole where if you bring aging parents in China over to live in America, they can qualify for senior benefits from the US government. They come, despite never having worked in the US, and get monthly checks to cash that are substantial enough to live on. Don't know enough about this to elaborate and I'm a little skeptical about this, but have heard a lot about this. - America is so much more attractive than China. A lot of the wealthy international students I met in college had very tracked and relatively stress-free lives growing up. They never had to study for or take the gaokao, which is the infamous college entrance exam, since they knew from early on that they would be coming to the US for their college education. A lot of them do try and swing for jobs here after graduation as well, since the pay is substantially higher than in China. Heard this sentiment from a lot of Hong Kong residents. Curious if anyone has heard/observed similar.

akssri 11y ago
> 1.5-2+X markups they have to pay back home I'm surprised to hear that, esp. since much of it is actually manufactured there.

WoodenChair 11y ago

There's a lot of hyperbole in this post. The graph you link to of debt-to-GDP is actually very similar in China (282), South Korea (286), Australia (274), USA (269), Germany (258), and Canada (247). And for the record, South Korea's is higher than China's according to that graph. China's is more heavily weighted in "non-financial corporate" which is interesting. And the shanghai stock market is not "close to retracing back to 2000." This graph shows, it's well above that: http://www.tradingeconomics.com/charts/china-stock-market.png?s=ssecomposite&d1=20000101&d2=20151231 http://www.tradingeconomics.com/charts/china-stock-market.pn... You're assuming both a continued free-fall at the same rates and also that p/e ratios in China mean the same thing as they did for .com companies in 2000 in USA. Any market newbie will tell you that what a "normal" p/e ratio is will differ greatly by sector even within the same economy. China's may be out of whack, but it's not fair to make an arbitrary comparison. I'm no China apologist, but making predictions of 10-20 years of decline with an authoritative tone is wrong given the facts you presented.

seanmcdirmid 11y ago
sharetea, your comment was killed for some reason.
Gibbon1 11y ago
I think hysteria would be warranted if the Chinese government were to take a Schumpeter/Hayek/Mellon liquidationist response to the collapse of the market bubble (see the US/Europe circa 1929). Why yes then you would have contagion spreading out into the real economy and a long depression. I'm thinking not. Instead I the Chinese central bank will inject liquidity again, much to the horror of the WSJ Editorial board who will again sternly warn that such actions, mark their words! come to an bad end! snort
sharetea 11y ago
My reason for saying 10-20 years was based on the similarity of Japan in 1990 and China today. That is, they're both exporting country that has an aging demographic which likes to save, has a small consumer base compared to export, and is losing export share as production moves out of country to other cheaper countries. And they both choose to save the banking system instead of letting it self correct.

nkozyra 11y ago

Why do people continue to use aggregate debt (including domestic bond debt and outstanding liabilities) to present GDP ratio as though it is a meaningful harbinger? Any non-superficial analysis of what that entails and means should show you this is - while not entirely irrelevant - mostly meaningless as an indicator of economic health.

irln 11y ago
Non-sarcastic question, what are the indicators that you don't find mostly meaningless when it comes to analyzing China?
repsilat 11y ago
> mostly meaningless Well, you have to know at what interest rate the country borrows, and have an idea about the country's deficit and rate of GDP growth to know how sustainable the debt is, I suppose, but it's a pretty important number nevertheless...

kev6168 11y ago

many shocking claims in the post, "deep trouble", "has already burst", "collapses", " permanent decline", "inevitably suffer", "massive internal unrest", "has really screwed up", ... This assertiveness on something so complex is not productive and helpful.