China Trillions Debt Bubble Could be the Black Swan to Crash the Global Economy
The Nomad Economist: Feb.19, 2022
The Chinese economic downturn comes as no surprise to global analysts. As outlooks are adjusted accordingly, it isn’t the country’s profit margins that are causing concern, but the decades of spending on unfinished building projects that have created a deluge of bad debt for China.
China was a (domestic and international) debt-free country in 1975. Up till ten years ago, China’s economy relied exceptionally little on debt. But China lost its debt hindrance in late 2008 when the global financial crisis erupted.
With growth slowing sharply and 20 million people losing their jobs overnight, the government unleashed a giant stimulus that was powered almost totally by bank loans. The debt genie was out of the bottle — and it has been challenging since then for China to stuff it back in.
Opening the credit floodgates saved the Chinese economy after the global financial crisis. The government cannot disengage the country off this debt dependence. China’s total debt — corporate, household, and government — grew to over 300% of its GDP in the first quarter of 2019.
China’s debt-to-GDP had bubbled to more than 300 percent from 160 percent a decade ago. It is causing many analysts, including Chinese officials, to warn of a financial-sector debt bubble that’s waiting to burst.
Debt scratches at a level 6 with deeper grooves at a level 7. China is now very much past the tipping point where the debt simply no longer can be ignored. The cost of servicing the debt simply diverts from almost everything else.
And there’s a whole host of hidden debt in China, which had kick-started stimulus this year as its economy slowed. The trade war has put a dent in efforts to pare the gargantuan debt as the Chinese government sought ways to boost the slowing economy, which was at its lowest growth in 27 years this year.
As China tries to move away from export-led growth to domestic-led growth. Debt levels in China quickly soared vertiginously a few years ago as the banks extended record quantities of credit to drive growth, which led to the second world economy undertaking deleveraging efforts, or the process of reducing debt.
China’s economy relies on too much debt. And the enormous boom in credit risks, potentially leading to a new financial crisis. The country’s debt has grown expeditiously since the global financial crisis.
China’s economy is based on a shadow banking and Ponzi scheme. China’s enormous infrastructure spending was often invoked as a model for the US. But with debt piling up, Beijing must juggle ever-more furiously to maintain appearances.
China has 64,000,000 empty apartments. All those empty apartments which were made in the hopes that the value of the land would increase overtime AND that people would rent them out. But I am assuming none of that is happening, and that they are losing a lot of money.
China’s corporate debt is another huge problem too. Companies in China owe more than the economies of the UK and Netherlands combined, and that could have repercussions for the world economy.
The Chinese Debt mountain has escalated from Virtually zero in 2000 to over 35 Trillion USD in 2018. That means each Chinese owes $20,304 when china’s minimum wage is $1.60 per hour.
Over 80% of china’s debt is held by the National and State Chinese Banks. And they know full well that as a large chunk is in Western Business, then it is un-repayable.
So the only resolve is massive Global financial meltdown or Debt forgiveness.
And that is the exact horse that the Chinese and US are riding. Deutsche Bank has recently climbed aboard. In that Central Banks, many of which are over 60% Leveraged; will have no alternative if wanting to avoid Global Fiscal meltdown on Fiat currency that Debt Forgiveness and Printing even more Paper are the only tools left with most economies at 2.5% growth or lower.
You can not taper a Ponzi scheme in that Compound interest repayment is unsustainable in low growth economies.
US Bond market is now inverted. The 2008 financial collapse has never been dealt with. And now all that Toxic debt with its new mates is falling out the cupboard it was hurriedly stuffed in all over again.
China’s problems and our problems are the same.