Coffee House

The indebted superpower: China

8 November 2012

2:21 PM

8 November 2012

2:21 PM

Not only the US, but China is gearing up to welcome a new President, in its case Xi Jinping. That’s not the only similarity between the two global powers. While nothing can beat America’s critical levels of debt (watch the media leap like lemmings over the term ‘fiscal cliff‘), the Middle Kingdom isn’t doing too shabbily at clocking up credit of is own.

It’s a bit of a myth that Easterners love to save, as a report today from Standard Chartered shows. The explosion of a middle class means consumers want their shiny goods, and they want them now. China’s new leader will inherit an economy that’s 30 per cent more leveraged than the one his predecessor Hu Jintao took over in 2002.


Furthermore, China’s total leverage (in other words, borrowing) will rise from 191 per cent of GDP at the end of 2011 to 206 per cent by the time this year is over, according to Standard Chartered calculations. This figure includes public, consumer and corporate debt. Before the New Year arrives, China’s public debt will stand at 58 per cent, consumer debt at 19 per cent and corporate debt at 128 percent.

Standard Chartered points out this is not altogether a bad thing, especially in the shorter term. After all, nobody can have faith in an economy that doesn’t take any risks or make investments. In the longer run though, Beijing would do well to be more prudent. ‘Even a mild deterioration in credit quality could be severely damaging to China. A non-performing loan ratio of 12 per cent would wipe out the banking sector’s capital.’

And here’s a problem Barack Obama doesn’t face: a murky, mysterious lending system. China’s financial landscape is dotted with ‘local government investment vehicles’ whose activities can be puzzling and opaque. Not to mention the nation’s multi-trillion ‘shadow banking system‘ that’s probably expanding too fast for its own good. As China’s big guns meet for the CCP congress at the Great Hall of the People, they may not want to introduce the democratic changes that the country so badly needs and wants. But they may want to bring more reforms in an area close to their hearts – the economy.

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Show comments
  • Daniel Maris

    What a couple of unlovely thugs: determined to deny workers’ rights in China through murder, torture and intimidation and determined to pursue ethnic cleansing in Tibet and elsewhere. That’s the reality, folks – anything else is window dressing. Don’t believe the imperialist hype.

    As for their claims to be countering corruption, well put that on a par with the Mafia promising to root out prostitution and drug-dealing.

  • eeore

    China is being set up in exactly the same way as Japan.

    And knowing this explains why some banks are too big to fail.

  • David Lindsay

    How I wish that I had listened to Her Majesty five years ago over that sixth gin and Dubonnet.

    “We need you as both President of the United States and General Secretary of the Chinese Communist Party in November 2012. We can of course arrange all the paperwork with ease.”

    “I know, Lilibet, I know. But I have made a commitment to the voters of Lanchester and to the undergraduates of Collingwood.”

    Will the two chances ever again coincide in either of our lifetimes?

  • Baron

    If that were the Republic’s leverage, the messiah could spend the next four years playing golf.

  • Madame Merle

    I suspect that the people would take “shiny things” over democratic changes any day of the week.

  • LordLieutenant

    There is a real opportunity for those blessed with stable countries ruled by impartial benign laws.

    Wealthy Chinese are already moving their capital away from the reaches of the CCP. With citizenship, that money ceases to be Chinese.

    Now I know that this is a low-down dirty rat type thing to do, but there is a cost involved in running a system based on arbitrary justice and patronage and an advantage in a legal system that respects private property.

    • dalai guevara

      Is this a call for ex-pat repatriation from Bahrain, Switzerland and CNN chat show studios?

      • LordLieutenant

        No, although it would be just as interesting to see what might entice them to return as it would be to find out what would make Morgan stay away forever.

    • Daniel Maris

      You want to import a load of corrupt Chinese thugs to add to our corrupt Russian oligarchs? Great.

      Here’s a novel policy: how’s about we promote honesty and plain dealing rather than moneyed thuggery…

      • LordLieutenant

        Thugs are thugs when the law allows them to act that way. Something I’m glad Ken Clarke no longer has a hand in, but wish that more would be done.

        Respectful, lawful behaviour from foreigners can be gained through one magic word – The word that Peter Obourne flees from..


  • dalai guevara

    The single biggest threat to China is coordinated watering down of their foreign currency assets without an opportunity to ‘reinvest’ them by taking over foreign assets in return. Chinese competitiveness is already reducing and places like Vietnam are treading in their footsteps in some sectors.

    • Daniel Maris

      Let’s f*** them over with inflation (the poor man’s friend).

      • dalai guevara

        There is too much spin in your statement, I cannot cope with that 😉

  • Frank

    If everyone is in debt, to whom is that debt owed?

    • HooksLaw

      To the person left standing when the music stops?

    • chudsmania

      The worlds finances = one massive ponzi scheme , so in parallel to your question , if the debt is so bad , who holds all the money…..See my first point !!

    • Daniel Maris

      Japan owes nearly all its debt to Japanese people i.e. it doesn’t really owe anything even though it is the most indebted nation on Earth. Isn’t economics lovely!