Monday, December 19, 2011

More Proof of Economic Madness in China: China Public Debt is 80% of GDP, Not Official 17%

The very tied in Nouriel Roubini tweets:
RGE estimate of China public debt is 80% of GDP. Official # = 17%
Here's the latest via Bloomberg on the insanity going on in China:
A copy of Manhattan, complete with Rockefeller and Lincoln centers and what passes for the Hudson River, is under construction an hour’s train ride from Beijing. And like New York City in the 1970s, it may need a bailout.

Debt accumulated by companies financing local governments such as Tianjin, home to the New York lookalike project, is rising, a survey of Chinese-language bond prospectuses issued this year indicates. It also suggests the total owed by all such entities likely dwarfs the count by China’s national auditor and figures disclosed by banks.

Bloomberg News tallied the debt disclosed by all 231 local government financing companies that sold bonds, notes or commercial paper through Dec. 10 this year. The total amounted to 3.96 trillion yuan ($622 billion), mostly in bank loans, more than the current size of the European bailout fund.

There are 6,576 of such entities across China, according to a June count by the National Audit Office, which put their total debt at 4.97 trillion yuan. That means the 231 borrowers studied by Bloomberg have alone amassed more than three-quarters of the overall debt...

Fraser Howie, the Singapore-based managing director of CLSA Asia-Pacific Markets who has written two books on China’s financial system.

“You should be more worried than you think,” he said of Bloomberg’s findings. “Certainly more worried than the banks will tell you.

“You know how this story ends -- badly,” he said.
The centrally planned manipulation of the Chinese economy, including massive amounts of money printing, could result in the greatest economic crash of all time.

13 comments:

  1. China owns about $3trillion in foreign reserves and runs a large current account surplus. China will be just fine.

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  2. We've taught them how to build things and now we've taught them how to fudge numbers.

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  3. @ti$ch true there will some people who will be ok but an awful lot more are going to be bewildered and very very angry.

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  4. China private equity played a part in the manipulation:

    http://www.reuters.com/article/2011/12/16/us-dealtalk-china-private-equity-idUSTRE7BF0R820111216

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  5. China Banks want to learn from U.S. branded private equity firms:

    http://dealbook.nytimes.com/2011/12/06/china-development-bank-pairs-up-with-private-equity/

    The bubble can't burst fast enough.

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  6. They will have a crash, but not an inflationary one like we are facing. They are producing and exporting. The government is stealing all of their purchasing power along the way.

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  7. Then there are the experts claiming the Chinese will use their financial muscle to squeeze the world. It's ironic:

    http://peureport.blogspot.com/2011/10/carlyle-group-aiding-americas-biggest.html

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  8. The US has debt/GDP of 100%. The EU has debt/GDP of about 100%. If China, the second largest economy in the world, has debt/GDP of 80%, who are the creditors? Where does those money come from? Isn't this sound a bit unbelieveable?

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  9. China does have lots o foreign reserves but it's local munis are sated with loads of debt. If you read the book "red capitalism" it gives a detailed account of how bad china is with that reguard and how fragile there banking system is.

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  10. The "G" part of the GDP equation strikes again...it's the single biggest contributor, hider, etc. of real economic data...

    Solving for G on both sides of an equation should equal zero, not 1. :)

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  11. So, China is in equally bad shape compared to the US, EU, and Japan? What is the implication? All these countries can now laugh at each other and start raising debt again, to perhaps 300% debt/GDP? Is this sustainable? It looks to me the guesstimation of 80% debt/GDP is just to give an excuse for the US and EU to print more money.

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    Replies
    1. Why would they need an excuse?

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  12. Some detail on how the private companies in China are also engaged in balloning the GDP. I recently imported from China goods for 4300 USD and then found out that my Chinese supplier declared in his export declaration 10.300 This amount will go in the official Chinese statistics and here in this small example we see the export encrease more than twice. And I am sure that many Chinese companies engage in such things as there is a clear motive - they can increase their VAT reimbursement in such a way. On the other hand I am sure that it is not unique to China, in any country that has VAT some companies will be doing similar things.

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