[tyre]

A few counterpoints.

From your original comment

> In addition, it doesn't seem like this rate is accelerating (since 2009), but linearly increasing.

That is the overall percentage of bad debt increasing linearly, meaning accumulation of bad debt is accelerating faster than growth of "good" debt. This was also the case in the US mortgage crisis.

From this comment

1) It would be less of a concern if China had less liquidity while Chinese companies were also getting less access to liquidity. Shadow lending from wealth management product (WMPs) is a massive structural issue for the Chinese economy. When the underlying assets fail, you have a recession. It also means a centralized economy with lots of the downsides (bribes, joint ventures, etc.) but without the control.

2) American corporations believe there is tons of money to be made, but not many have been successful. In the event of a Chinese recession, those experiments will be vastly drawn back when Chinese consumers become pessimistic. In the event of an American correction, they'll pull back to invest in proven markets.

3) I haven't seen evidence that these ghost cities are the result of central planners building slack for expected growth.

4) Internal private debt (see 1) is a much larger problem. Most of that is owned by the central government, which means either a bailout when companies fail, continued lending until a bailout, or letting their economy correct.

[obblekk]

Linearly increasing: True. I misread the axis. It still doesn't seem to have the form of something in a bubble or clearly unsustainable.

1. That's a fair point. But I suspect this has more to do with less developed capital markets in China than systematic weakness. I wonder if local supply of capital will be able to step up in the next American recession.

2. I think many have been successful in lowering their manufacturing costs. Not sure how an American correction would affect the Chinese economy.

3. Fair.

4. I'm generally skeptical of this argument. US corporations and households have maintained a high level of debt for more than 50 years without significant effect. I guess the Federal gov hasn't been the holder of that debt, but it actually seems better that way because they have the ability to print cash and add a stabilizing effect.

I guess my point is that none of these individually seem extreme enough to cause a problem. Maybe in aggregate there could be a storm.

[tyre]

Interesting point on (1). I wonder if that could trigger relaxed repatriation taxes for corporations in the US. Bringing a few hundred billion home would be great in a liquidity crisis.

I wasn't thinking of (2) that way, but in that case you're right that southeast asian competition is a bigger factor. If cheap manufacturing leaves, China would need to shift to consumer growth, which American companies thus far haven't really cracked (except Apple to an underwhelming degree.)

An interesting aside on (2) would be if a trade-protectionist president is elected in the US. This would re-prioritize from cheap manufacturing overseas to better jobs at home—triggering or accelerating what you were talking about. The New Yorker had a great piece today on how both Sanders and Trump are of that mindset.[1]

(4) might be a case of six in one hand, half dozen in the other. Turned out that the US government did (indirectly) hold all that mortgage debt when it bailed out the banks. That said, it looks better externally to institute QE to bailout companies who backed bad debt than to print money to pay off your own debt.

Either way, I'm not sure we are or aren't at a crisis yet, but they also haven't fixed some basic structural problems.

[1] http://www.newyorker.com/magazine/2016/02/22/trump-sanders-a...

[forgetsusername]

>I haven't seen evidence that these ghost cities are the result of central planners building slack for expected growth.

I think this reveals some bias. The evidence is the cities themselves. Or do you think that it's central planners merely trying to improve GDP numbers, but completely oblivious to the fact that Chinese citizens are urbanizing at a scale not seen before in human history?

[seanmcdirmid]

If you are talking about Ordos New Town, it is local governments and tycoons trying to do something with their coal money. This isn't really central planning, more like investment options suck, and we can't just park our money in the bank, so let's build a city in the middle of nowhere! Ordos is filling up slowly, but it's clear at this point that many of the buildings will be torn down before they are ever occupied (Chinese constructed buildings only last around 20-30 year before they are completely derelict).

China is urbanizing, but it is not clear those poor farmers can afford the $200k+ apartments being built...even if they come down by half or more. Not only that, but these farmers can't even get hukou, making them second class citizens in the cities they might move to, ineligible for schooling for their kids or even subsidized healthcare. China needs to do a lot of reforming before this massive urbanization can happen, and they haven't really prepared for it (e.g. By focusing on luxury apartments vs. mass social housing with schools and hospitals enough to give those farmers proper urban hukou).

Finally, farmers can't even sell their land to buy an urban apartment. Instead, they have to wait for it to be appropriated by the local government (if near a growing urban area) or otherwise, they are just SOL. It really is quite a mess.

[dh997]

Exactly. Wealth transfer and mobility for some, but not growing a middle class sufficiently to realize these artificial investments. China could invest more in better equiping people to make and earn more value, so they can afford cleaner/nicer cars, homes, factories, etc.