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Among the many things that are worrying international investors today, from plunging oil prices to the specter of a global economic recession and deflation in Europe, one of the most crucial, and the least understood aspect is China’s debt.
As of October, the national debt of China, which is the total amount of money owed by the Chinese government and all state organizations and government branches. It stands at approximately CN¥ 38 trillion or $5.4 trillion dollar at around 54.44% of GDP. This figure, though, this does not include local government financing vehicles. So we should multiply by at least 3.25 for this figure, then consider adding value for China’s shadow banking (loans outside of formal banks). Local debt is the biggest problem in China. In July 2019, the Institute of International Finance (IIF) reported that in the first quarter of 2019, China’s total stock of corporate, household and government debt rose sharply to over $40 trillion dollar and is now exceeding 303% of gross domestic product GDP, from 297% in the same period a year earlier, the IIF wrote in a report . China’s debt now accounts for around 15% of world global debt. And this is just the tip of the iceberg for what may becoming. The idea that China is somehow a frugal saving nation that doesn’t have a lot of debt is, at this point, bluntly wrong. As of today, China is very much past the tipping point where the debt simply can no longer be ignored. China’s Debt to GDP Ratio Is Growing as Its economy loses steam. For the past few years, China has been on a borrowing binge. The world’s second-biggest economy, which is slowing, is past a point where it cannot ignore its enormous debt anymore. The cost of servicing the debt distracts from almost everything else. And even China’s efforts to shore up sagging economic growth are leading to a resurgence in indebtedness.
For at least a generation, China has relied on borrowing to fuel its economic expansion. This abrupt pace of growth, with many borrowing heavily in the process, has caused its total debt—the sum of government, corporate and household borrowings to sore by 100% of since 2008, and is now 300% of GDP; a little less than wealthy nations, but far higher than any other emerging market. China’s debt mania, and by this, I mean madness, craziness, and frenzy, is now the largest ever experienced in the emerging postwar world. As the China story unfolds, it is comprehensible that the scope for a debt meltdown in China remains immense. China’s Debt trap will end with a major chinese yuan crash or much worse. The truth is we don’t know what China’s actual debt is, and I bet it is way more than the official figures, way more. Defaults, wealth investment products, state-owned enterprises, loan sharks, off the books, empty cities, real estate, local government debt, corporate debt, consumer debt, dollar shortage, non-convertible currency, dollar-denominated debt. China is The People’s Republic of Non-Performing Loan. And there is a whole host of other hidden debt.
The Chinese economy is definitely heading to economic collapse, and there are a lot of headwinds. It seems reasonable to worry that China could be heading for a huge chinas yuan crash in the coming year. Of course, China being China, the media probably won’t learn about it until things are starting to boil.
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