China's debt problem

[Randy W]

Maybe someone with an Economics background can explain this article to me and how it relates to our own US Governmental debt. I believe this is about corporate debt. I'm also unclear as to the qualifications of the author. In the SCMP - The US$26 trillion debt problem that is crushing competitiveness in China

 

China owes its stock market boom and bust to the one thing that is crushing the competitiveness of every part of the world's second biggest economy - debt.

 

The nation's debt mountain is widely estimated to top 250 per cent of gross domestic product, roughly equivalent to US$26 trillion, and is unlikely to peak before 2018.

 

Its rate of growth since the start of the global financial crisis in 2007 has been exceeded only by the euro zone countries that have required international bailouts to stave off bankruptcy.

 

The mainland corporate sector is among the most indebted in the world and the drag on economic activity is made worse because most has been accumulated by state-owned enterprises that deliver a shrinking share of economic growth.

 

. . .

 

"Debt by itself is not necessarily a problem, but if the borrowed funds go to finance investments that generate diminishing returns it is," Yao wrote in a recent note to clients in which she calculates that the ratio of investment required to generate one unit of output has rocketed to 5.5 from less than 2.5 before the global financial crisis.

 

"As the growth deceleration intensifies and financial market liberalisation accelerates, denying the debt problem is becoming an increasingly unviable strategy," Yao wrote in a note.

 

Not least because of deflation, a force that has had an unshakeable grip on the corporate sector since early 2012.

 

. . .

 

Private firms in the mainland are estimated, given fragmented and opaque reporting structures, to be carrying a debt load worth about 50 per cent of GDP. The average interest rate they pay is about 9 per cent, according to calculations by Yao.

 

 

 

My head just starts swimming after a couple of paragraphs.

 

This is all they say about the author

 

Nick Edwards is a financial journalist with 25 years' experience in international real-time news, video-on-demand TV and print. Most of his career has been spent covering Asia's growing influence on the global economy, investment markets, international business and financial policymaking.

 

 

[Greg.D.]

I don't think it relates to US government debt, as you say. In a Reuters article similar to ths one, it compares to US coporate debt ratio (profit to debt) and the U.S. looks better in that regard.

 

Maybe the party was injecting money into the Shanghai stock market to fight this debt problem, maybe even cause some mild inflation to reduce this corporate debt ratio on paper.

 

I used to always hear that local municipalities are paralyzed with debt now after being forced to fund eye-catching infrastructure projects. And, that has not gone away, either.

 

Meanwhile, the NYT recently has been discussing how China is taking cash that they have and "investing" it in developing economies to 1) secure resources, 2) create work for Chinese companies, and 3) tie those economies into high interest rate long term debt (to China).

 

I don't have an opinion about that and I know Europe is doing the same; US likes to sell Boeings abroad and make deals on weapons for similar lock-in purposes.