Quote:
Originally Posted by jyl
Corporate Debt:
So, that’s some numbers on the debt side to think about. Not suggesting the US debt load isn’t heavy but China’s debt load is much heavier.
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Looking a little deeper at the debt side, two reasons China's corporate debt is so large are:
1. China's government uses ostensibly "corporate" debt as a source of funding. Local governments use local government funding vehicles (LGFVs), local and central govts use state owned enterprises (SOEs), and then there are the Evergrandes, who borrow to buy land from local govts and have been perceived (until now?) as having govt backing. This debt is reported as "corporate" but actually serves government purposes.
2. China's government controls the banks, and uses debt to meet its growth targets. Whenever GDP growth looks to be at risk of missing the official 6% or 7% target, the CCP tells the banks to step up lending to corporates. Most of this lending goes to property development, since that's the fastest/easiest way to goose GDP.
China's debt problem is huge and deep-rooted.
It's not so much that today's debt, huge as it is, can't be serviced or worked out. The CCP controls the domestic banks that make the loans.
It's that the only way China can keeping growing at a high rate is through adding more and more debt funding projects that are less and less productive.
Naturally, the CCP would like to have foreign lenders fund more of this. Wiping Evergrande's foreign bondholders out is not going to help their cause.