[marukokinno]

Every year , for the last 20 years, many articles say that we can be sure of the imminent Chinese economy collapse. Then every year they are proven wrong. This is just one more of these articles. The guys have no idea what they are talking about. The education effort is as huge as the infrastructure building effort, and it will bring its benefits. At some point the growing will slow down; at some point it will be 1% yearly growth; but a political collapse is very unlikely, and economic collapse is even more unlikely.

[seanmcdirmid]

Hey, back in 2007 someone wrote:

Every year, for the last 20 years, many articles say that we can be sure of an imminent housing crash. Then every year they are proven wrong. This is just one more of these articles.

... Bubbles are bubbles until they pop. A lot of infrastructure in China is under utilized, and let's not even get started on empty shopping malls and apartment buildings, even here in Beijing!

Whether the government can pull off a soft landing is up for debate, but every year with people, local governments, and companies become more leveraged, not less, I think a hard landing is more likely.

Now, if that happens, this doesn't necessarily mean that the government collapses, but many of the bandits who are making out on this have gotten their money out of the country, and a correction is more likely to negative effect those who didn't really benefit in the gorging. And if that happens, the CCP (many whose relatives have already fled abroad) is going to be facing a lot of pissed off nongming.

[Zigurd]

Except that Chinese make stuff people buy. The US housing bubble was economic onanism.

[seanmcdirmid]

The Chinese internal economy is not as robust as its export economy, and shifting the economy to one based on consumption is an important goal to making it actually healthy. Right now, people just save or invest...and the investments are limited to some shady financial products and...real estate.

[marukokinno]

>>and the investments are limited to some shady financial products and...real estate. This is in Beijing , or Hebei, Henan and the 3 northern provinces. At the Pearl River Delta and the Shanghai-Zhejiang-Jiangsu triangle the investment is in production.

[seanmcdirmid]

People from Wenzhou basically invented highly leveraged real estate speculation.

Also, as a normal person without guanxi, you can't really get access to the sure bet industrial investments, and participating in shadow lending is very risky.

[marukokinno]

chinese dont live on credit like americans, they live for saving. The financial market is slightly more regulated than the american financial market, aswell.

[seanmcdirmid]

Exactly. Most of the money is kept in saving accounts with interest rates that are far below inflation. And what do you think the banks are doing with that money?

[adventured]

China is in fact buried in a massive pile of debt, from corporate to muni to personal, that they will never be able to climb out from under. And they've had to pile on ever larger amounts of debt just to keep faking the 'growth.' The notion of China being the land of savings and low debt is completely a myth.

"Meet China's Housing Debt Slaves"

http://www.bloomberg.com/news/2013-02-19/china-housing-slave...

http://www.zerohedge.com/news/2013-02-20/meet-chinas-housing...

"In the meantime, some investors are increasingly alarmed by the speed at which local governments are piling on debt to pay for public works. China's state auditor said in its report on Monday that local governments had total outstanding debt of 17.9 trillion yuan ($2.96 trillion), including contingent liabilities and debt guarantees, at the end of June."

http://www.reuters.com/article/2013/12/31/us-china-debt-anal...

"A report by Nomura said Thursday that Chinese municipal debt, a focal point of major concern about the country’s economy, had grown at an alarming 39 percent clip in recent years."

http://www.nytimes.com/2013/09/27/business/global/report-war...

"China's overall debt-to-GDP ratio has sprung to over 200% from about 120% in five years. Most of this is from local governments and state-supported companies."

http://online.wsj.com/news/articles/SB1000142405270230455400...

China's corporations are drowning in debt, at 151% debt to GDP ratio, the highest basically in the major industrial world. Twice as high as America's ratio.

http://i.imgur.com/t8bIpfS.jpg

[AJ007]

For the past 20 years I've been hearing how China was going to take over the United States in everything. Invasion of Taiwan would happen whenever they wanted. I've never heard anyone say their economy was about to imminently collapse.

I'm surprised any one thought that China's "bailout" was doing anything more than kicking the can down the road? It is the end of the road now, and they get to deal with unserviceable debt. There are many options. All are ugly in unique ways. For who and when are the questions left undetermined.

[InclinedPlane]

It's a mistake to believe that either China's will continue along uninterrupted or that it will fall into severe crisis. The reality is that China has a strong economy AND also a very flawed and troubled economy (India has similar problems but in a different way).

The result will probably be that China's growth will at some point stall out before reaching developed world levels and they will probably be faced with some manner of serious problems at a level less than countrywide existential crisis.

Also, as to "predictions being proven wrong", remember that every year during the 2000s many people predicted that the housing market would implode and lead to a major economic crisis. They were "proven wrong" every year until it actually happened.

[radicaldreamer]

This trope is just not true, but people keep bringing it up when discussion of China's enormous debt growth comes up.

https://twitter.com/prchovanec/status/442838642974007296

[marukokinno]

Last time I checked, China had 1 Trillion dollars in reserves. Chinese people is not living on credit cards, actually quite the opposite, they save a lot, even the little waitress at the cheap restaurant has a lot of savings. Every year, at spring festival, hundreds of millions of young chinese give their savings to their parents to keep, and those old people can save! I dont know where is the debt guys are talking about.

[JamisonM]

The US economy was badly hurt by household debt because household spending fuels the US economy, this is not the case for the Chinese economy. An 8x increase in corporate debt in China in the last 5 years means something in an economy driven by industrial production instead of individual consumption. I do not know exactly what it means but I suspect there is some grounds for believing it may not be entirely good.

Chinese households might be less inclined to take on debt, but they've still managed to rack up about 30+% of GDP worth, so they are working on it.

[AJ007]

You can lose your savings from a bank default, this happened to some weak banks in the US. You go to withdraw your money it is not there.

You can lose your saving from currency devaluation. In order to pay off debt, a government can issue new currency (debt denominated in its own currency; in Eurozone countries they can only raise taxes and cut spending to pay off debt.) Your savings don't matter because there is so much more money. An old unit of currency is equal to new units.

We can't be certain of Chinese banks' liabilities but it is something you can keep an eye on in the Western press, if blocked locally ( http://www.bloomberg.com/news/2014-02-14/china-banks-bad-loa... )

If I was Chinese, I would not be too concerned as long as I did not have liabilities for my business or money deposited in a bad bank. If yes to either of these, you are at risk of losing everything.

[adventured]

China has $3 trillion in reserves, and it's completely meaningless when stacked against their rapidly expanding pile of debt. China is one of the most indebted nations, and to keep their GDP growth going they have to keep adding ever larger sums of debt. The amount of growth they get from $1 of capital has crashed the last six years. It's obvious how it's going to end: either in a very long period of dire stagnation, or crash.

[hangonhn]

If someone say it for long enough, they're bound to be right one day. It's the same about the decline of the US.

All we can do is judge them on a case-by-case basis.

In this case, it's really hard to judge because the threat, similar to the US credit crisis, is hard to measure. China has a really sizable foreign reserve that some people think will buffer any economic crisis. However, some estimates of the shadow banking system puts it well beyond its reserves. That said, not every loan in the shadow banking system will go bad. It just means the loans were made off the books. One can reasonably assume that the lender did his work and made loans that have a decent chance of success. Also, I don't know what falls under some of the definitions of shadow banking. The Chinese have been loaning each other large sums of money for generations. This "tradition" is one of the theories put forth in the rise of overseas Chinese communities and their dominance in business in those areas. Anyways, my point is that it's not all doom and gloom. The threat is there but don't panic yet.

[AJ007]

The problem with leverage is that you don't need a 100% failure to be wiped out. This is why the US crises was not very surprising, the investment banks had upwards of 1:30 leverage ratios. Similar things were happening to real estate investors.

So no, not all of the loans will go bad. But, some go bad. First prices stop growing. No growth? Why borrow to buy? Next prices drop, and then suddenly a lot of loans that should have been ok are worth far more than the underlying assets. Then it is just a big mess.

Think of a credit bubble as a game of musical chairs. The people who borrow money at the end always lose (also the ones that lend money.)

[hangonhn]

Yes a good point.