| A few points to ponder: - Money spent counts toward GDP, even if the money comes from a bank loan that will never be repaid (Example: big real estate project in a third-tier city that will never sell for its listed price) - China's foreign reserves can not be used to pay back debt denominated in Chinese Yuan (foreign currency reserves are the result of people/institutions giving the Chinese government foreign currency in exchange for Chinese Yuan -- you can't do the conversion twice) - China has a shrinking workforce due to demographic shifts. Specifically, they have moved from an agrarian birthrate to an industrialized one. You are correct that China has a huge population and workforce. Their wages are rising (which is good for China!) which makes them less competitive as the factory to the world. The Chinese are making progress at moving up the value ladder to help justify those higher wages, but they aren't quite at the top yet. And the workers are very much getting squeezed between high living costs and soon-to-be higher costs to service all that debt and pay benefits to those not in the workforce. These are some reasons why experts are suggesting that China needs a new and more sustainable growth model. The Chinese government will not allow the Chinese banks to fail the same way the USG did for Bear Stearns. They will likely buy the bad loans from the banks at face value and put them in government-owned asset management companies who will attempt to restructure them. The cynic in me expects it will probably go worse than Japan since the '90s. |