Quote:
Originally Posted by jyl
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.
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Ahhh Foreign Lenders...do you remember the Opium Wars? Where China lost self determination for a century...well the Chinese do and have policies that make sure it doesnt happen again. Ever wonder why it is so difficult to invest in China? Well now you do.
In the USA Americans have QE and in China it is looser bank lending..both are designed to juice economies.
One of the problems here folks is your woefull Pollyanna perceptional mindsets.."When the Chinese need MORE growth they..." The reality is to keep from falling into the abyss of chaos the Chinese ..
The reality of the world is grim and horrific..here in the West we think it is optional as in avoidable..crying over every fallen leaf..
Omg a leaf has fallen. The west has grown soft..a bunch of pansies.
But dont worry.things have a way of evening out..