[toomuchtodo]

China has been performing debt swaps with local governments to clean up their balance sheets [1], so used as an example. Agree with all of your comment. People make the mistake that China plays by artificial US capital market rules around profit and debt; they do not. They optimize for physical world success, not line go up.

[1] Why China Is Hoping $1.6 Trillion Can Fix Its Hidden Debt Problem - https://www.bloomberg.com/news/articles/2025-04-16/china-eco... | https://archive.today/HsaHV - April 16th, 2025

[faitswulff]

Ah, I think I get it. Are you saying that regardless of BYD’s continued existence, China will still have 1/3 of the world’s manufacturing capacity?

[toomuchtodo]

Yes, exactly. Just as in the US, when an enterprise gets wiped out and recapitalized, all of the physical assets remain. In China’s case, they are the backstop of last resort, and will always recapitalize according to their nation state planning and target outcomes. They allow companies to operate the assets as long as the Chinese government is willing to allow it, but they remain assets of China.

[truetraveller]

So, essentially, there is a root company called China, Inc. Correct?

[tifan]

Exactly. Not strictly China Inc, but SASAC (https://en.wikipedia.org/wiki/State-owned_Assets_Supervision...)

[refurb]

There is no free lunch. Debt in China is still owed to someone. Printing money creates inflation. Oversupply leads to deflation.

It’s why China’s real estate company debt is dragging down the economy as a whole. It’s all connected.

China very much is held to the same rules as the US, especially as it engages with the global financial system.

Which is why they are in so much trouble. The economy is anemic. The last stimulus package barely made a difference. Debt overhang remains.

[amrocha]

There actually literally is a free lunch. Debt owed to the government by itself isn’t real. Assets and infrastructure are real.

It doesn’t matter how much you think China is in trouble financially, at the end of the day they still manufacture a third of everything in the world.

[refurb]

> There actually literally is a free lunch. Debt owed to the government by itself isn’t real.

False.

It may not be the same as debt owed to other parties, but not paying it still has consequences for things like money supply.

Otherwise, why would the government not just lend endless amounts of money? Even the Chinese government knows they can't do that.

> It doesn’t matter how much you think China is in trouble financially, at the end of the day they still manufacture a third of everything in the world.

Their output doesn't really matter when it comes to their financial situation. You can produce a lot and still be in trouble. And it's not me that is calling out China's problems, China is talking about it as well.

[amrocha]

I never said anything about lending infinite money, don’t straw man me.

The constraint is on real resources, which China has plenty of, regardless of how much debt they have.

The financial situation is an accounting detail. China could decide to write off all debt it owes to itself tomorrow, and literally nothing would change.

[refurb]

> I never said anything about lending infinite money, don’t straw man me.

You did say...

> There actually literally is a free lunch. Debt owed to the government by itself isn’t real

Which I think is reasonable to interpret as lending infinite money.

> The constraint is on real resources, which China has plenty of, regardless of how much debt they have.

I'm not even sure what you're saying here. Constraint on what? Money? Economic growth?

Assuming you mean money, it doesn't make much sense. Ok, China has lots of real resources. In order to pay down debt, they need to turn those resources into money. They can certainly create the supply, but they also need demand.

It's like Canada saying they have infinite resources in their timber. "We'll just cut down the wood and sell it". Well there isn't infinite demand for timber, so in fact, having a lot of resources doesn't mean you have endless money.

> China could decide to write off all debt it owes to itself tomorrow, and literally nothing would change

Absolutely not true. Look at the real estate developers. China is working hard to get them out from under the crushing debt they have. If, as you claim, they could "write off all debt, and literally nothing would change", why didn't they.

The answer is that China is mostly a market economy. Writing off debt has massive consequences bothing domestically and internationally.

This is the trade off China made when relying on the free market for growth. If they want to leverage the free market, then they are held to the free market's rules (which they are currently dealing with).

[amrocha]

I don’t think that’s reasonable at all.

Can you imagine a world where a government could spend infinite money without any problems? If you can’t, then why would someone else think that? If you thought my understanding of macroeconomics was different from yours and you were genuinely curious, it would have been a good idea to start by asking questions. Or if you thought I was an idiot you could have just ignored me. But you chose to assume an obviously ridiculous premise to my comment and reply based on that. That’s the definition of a straw man argument.

If you still care to know, the constraint on government spending is real resources (and whether they can be usefully utilized of course).

I don’t know about the real estate situation in China, and I don’t know if it was financed by private debt or public debt, so I can’t comment on it.