Hacker News Reader

Comment by genefriend | Hacker News Reader

China’s growth fueled by massive debt is over(350% to gdp, government + corporate + individuals). it’s barely returning one yuan for every yuan debt it takes on. The Chinese consumer is weighed down by housing debt and credit card debt. And the tariff is going to hit the consumers hard; soy prices increases already has Chinese consumers screaming.

View on HN

Interestingly, the US' total private and public debt amounts to 3.5 times the GDP as well but few seem to have as much concern over its debt as they do China's. Also, the UK appears to have a similar level of private debt as the US, and only a bit less public debt.

On public debt alone, China:UK:US is 66:85:107 percent of GDP, according to the IMF.

So what is the reason for major concerns over one but not others? Developed vs developing countries? Stronger vs weaker financial institutions/systems? Something else?

Note that a key measure that the US and other developed countries tend to be ahead of most developing countries is national wealth, i.e. its assets minus liabilities, as a percentage of GDP. (This is unsurprising since they have much more time to accumulate assets.)

"As of the first quarter of 2010, the Federal Reserve estimated that total public and private debt owed by American households, businesses, and government totaled $50 trillion, or roughly $175,000 per American and 3.5 times GDP."

https://en.wikipedia.org/wiki/Financial_position_of_the_Unit...

https://tradingeconomics.com/united-states/private-debt-to-g...

https://tradingeconomics.com/united-kingdom/private-debt-to-...

https://en.wikipedia.org/wiki/List_of_countries_by_public_de...

https://en.wikipedia.org/wiki/National_wealth

1.) dollar is reserve currency. Yuan is not. Yuan is barely convertible

2.) US has large debt but way larger assets. 40% of the worlds wealth in fact

3.) US gdp to debt is only around 100%

It's clear that the US is much stronger from the asset point of view.

If one looks at real economy, however, China can basically produce almost anything they need, except oil and some advanced electronics (which they are catching up fast and might become self-sufficient within 10 years). The US can do the same in the medium term but it will take time to reestablish its manufacturing industry to cover all needs.

Both are basically self-sufficient if need be. There is no severe weakness in the real economies of either country (except oil for both, over the medium term).

> 3.) US gdp to debt is only around 100%

You mean debt to GDP? Yes for public debt alone, but the same figure for China is around 66%. Check out my post above for comparisons of various measures and references.

Wasn't there concern that local gov't (provincial and municipal) debt in China is very high and very opaque? https://www.forbes.com/sites/sarahsu/2018/01/02/fears-over-c...

Local governments in the US are constrained by the very real threat of bankruptcy, and often balanced budget requirements.

I don't see how self-sufficiency matters (unless war). In a globalized economy you want to keep the high-margin business and offload low-margin business to someone else.

I'm not an expert, but my understanding is that heavy reliance on imports increases the riskiness of debt, as external pressures and events can impact the debtor without recourse (whereas even in the event of a local industry failure, imports remain a stabilizing secondary option).

In an event of financial crunches, a self-sufficient economy should still be able to hold its own without dire threats from cut of essential imports. Its economic crisis could be quite bad but won’t be catastrophic, as in some well-known cases we’ve read about in the news.

1.) ## China's yuan officially joins the SDR (Special Drawing Rights)

“The yuan's officially in the IMF's basket of reserve currencies.

On Saturday, the Chinese currency was added to the IMF's special drawing rights (SDR) basket, joining the US dollar, the euro, the yen, and the British pound.

"The inclusion into the SDR is a milestone in the internationalization of the renminbi, and is an affirmation of the success of China's economic development and results of the reform and opening up of the financial sector," the People's Bank of China said in a statement, according to Reuters.”

http://uk.businessinsider.com/chinese-yuan-officially-joins-...

2.) China's national wealth is second only to the US. https://en.wikipedia.org/wiki/National_wealth

3.) Presumably you are referring to government debt to gdp? US = 105.4% https://tradingeconomics.com/united-states/government-debt-t... and China = 47.6% https://tradingeconomics.com/china/government-debt-to-gdp

===

Everything point you made is invalid which means that you either misinformed or for some reason you want to deliberately misrepresent the economic landscape or you are a blinkered ideologue.

As the parent noted China has a very high debt to GDP ratio. But more importantly it's really hard to tell in China where the state ends and real capital markets begin (well, they probably don't exist outside of Hong Kong). The Communist Party certainly has a saying when it comes to Chinese banks extending loans to Chinese companies (as a part of their 5 year plans, etc). The US on the other hand has a well regulated and audited capital market. This just means that the debt in China is probably even less sustainable than it appears, which in the long term will either require a gradual depreciation of the Yuan or a constant "cooking of the books" to keep borrowers solvent. The former will cause social unrest when lots of savers see their wealth disappear and the latter just leads to an inefficient economy - with unprofitable "zombie" companies being kept alive by constant loan extensions.

I don't think depreciation of a currency that isn't fully convertible in a country that's a net exporter is going to be a massive crisis.

(Also, weren't people worried at one point about the huge amount of US government bonds owned by China?)

I'm astounded how little discussion the effects of China imposing tariffs on Chinese people has been getting really. Everyone's happy to talk about how imposing tariffs would just hit poor people the hardest and how retaliatory tariffs are a terrible idea when the topic is American tariffs, but the discussion of Chinese tariffs on food is all about the effects on American farmers - there's very little about them hurting China, even though they should if we applied those same theories on tariffs to them.

As a reference, USA's total debt to GDP is 852%: https://en.m.wikipedia.org/wiki/Financial_position_of_the_Un...

This is not the debt to GDP ratio, this is the sum of all government debts and assets. The debt to GDP ratio only includes public debts. The United States has a debt to GDP ratio of 104.17% as of 2015, less than the average for an OECD country. If you want to compare private debt to GDP, we're doing just fine there as well.

https://www.investopedia.com/terms/d/debtgdpratio.asp

https://tradingeconomics.com/country-list/private-debt-to-gd...

I’d love to see an article summing up some of these concerns re Chinese debt. If you have a good one please post it. Thanks.

“China's total debt surpassed 304 percent of GDP as of May 2017," the IIF noted.”

https://www.google.com/amp/s/www.cnbc.com/amp/2017/06/28/chi...

“the rate of growth is strong, rising more than 80 percentage points from January of the same year. The household debt-to-disposable income ratio is catching up to developed country levels, having reached 68.3% by the end of 2016.“

https://www.google.com/amp/s/www.forbes.com/sites/sarahsu/20...

Wonder where is your data is came from.

According to an article[0] on Bloomberg, it's 266% of GDP. Anything I've missed?

[0] https://www.bloomberg.com/news/articles/2018-04-03/china-s-a...

Virtually no Chinese people have credit cards. Everything is prepaid apart from business loans, cars and house loans.

It used to be that even house loans were rare. Things have changed very rapidly in the last 10 years, and even credit card debt is a concern to the middle class now (if you can believe the Chinese press, see http://www.chinadaily.com.cn/china/hk20threturn/2017-04/24/c...).

Then there are the traditional loan sharks in china’s informal sector that have been around forever and don’t show up in official stats (not to mention less dangerous friend/family lending).

Reply on news.ycombinator.com