Most Popular
1. It’s a New Macro, the Gold Market Knows It, But Dead Men Walking Do Not (yet)- Gary_Tanashian
2.Stock Market Presidential Election Cycle Seasonal Trend Analysis - Nadeem_Walayat
3. Bitcoin S&P Pattern - Nadeem_Walayat
4.Nvidia Blow Off Top - Flying High like the Phoenix too Close to the Sun - Nadeem_Walayat
4.U.S. financial market’s “Weimar phase” impact to your fiat and digital assets - Raymond_Matison
5. How to Profit from the Global Warming ClImate Change Mega Death Trend - Part1 - Nadeem_Walayat
7.Bitcoin Gravy Train Trend Forecast 2024 - - Nadeem_Walayat
8.The Bond Trade and Interest Rates - Nadeem_Walayat
9.It’s Easy to Scream Stocks Bubble! - Stephen_McBride
10.Fed’s Next Intertest Rate Move might not align with popular consensus - Richard_Mills
Last 7 days
Stock Market Brief in Count Down to US Election Result 2024 - 3rd Nov 24
Gold Stocks’ Winter Rally 2024 - 3rd Nov 24
Why Countdown to U.S. Recession is Underway - 3rd Nov 24
Stock Market Trend Forecast to Jan 2025 - 2nd Nov 24
President Donald PUMP Forecast to Win US Presidential Election 2024 - 1st Nov 24
At These Levels, Buying Silver Is Like Getting It At $5 In 2003 - 28th Oct 24
Nvidia Numero Uno Selling Shovels in the AI Gold Rush - 28th Oct 24
The Future of Online Casinos - 28th Oct 24
Panic in the Air As Stock Market Correction Delivers Deep Opps in AI Tech Stocks - 27th Oct 24
Stocks, Bitcoin, Crypto's Counting Down to President Donald Pump! - 27th Oct 24
UK Budget 2024 - What to do Before 30th Oct - Pensions and ISA's - 27th Oct 24
7 Days of Crypto Opportunities Starts NOW - 27th Oct 24
The Power Law in Venture Capital: How Visionary Investors Like Yuri Milner Have Shaped the Future - 27th Oct 24
This Points To Significantly Higher Silver Prices - 27th Oct 24
US House Prices Trend Forecast 2024 to 2026 - 11th Oct 24
US Housing Market Analysis - Immigration Drives House Prices Higher - 30th Sep 24
Stock Market October Correction - 30th Sep 24
The Folly of Tariffs and Trade Wars - 30th Sep 24
Gold: 5 principles to help you stay ahead of price turns - 30th Sep 24
The Everything Rally will Spark multi year Bull Market - 30th Sep 24
US FIXED MORTGAGES LIMITING SUPPLY - 23rd Sep 24
US Housing Market Free Equity - 23rd Sep 24
US Rate Cut FOMO In Stock Market Correction Window - 22nd Sep 24
US State Demographics - 22nd Sep 24
Gold and Silver Shine as the Fed Cuts Rates: What’s Next? - 22nd Sep 24
Stock Market Sentiment Speaks:Nothing Can Topple This Market - 22nd Sep 24
US Population Growth Rate - 17th Sep 24
Are Stocks Overheating? - 17th Sep 24
Sentiment Speaks: Silver Is At A Major Turning Point - 17th Sep 24
If The Stock Market Turn Quickly, How Bad Can Things Get? - 17th Sep 24
IMMIGRATION DRIVES HOUSE PRICES HIGHER - 12th Sep 24
Global Debt Bubble - 12th Sep 24
Gold’s Outlook CPI Data - 12th Sep 24

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

How Debt Differs in China, the US and Japan

Interest-Rates / China Debt Crisis Jan 12, 2017 - 06:29 AM GMT

By: Dan_Steinbock

Interest-Rates Unlike advanced economies, China remains better positioned to overcome its debt challenges, due to the nature of is debt, level of development and economic fundamentals. Change is coming – but after fall.

In recent months, China has managed to stabilize growth. Nevertheless, stabilization has required capital controls, continued lending and repeated interventions. Due to efforts to stabilize the renminbi, for instance, China’s foreign-exchange reserves fell to $3 trillion last month; the lowest since spring 2011.


Some observers have concluded that China has opted for a path that proved so costly to Japan in the 1990s and the US in 2007. Yet, realities are a bit more complex.

Dramatic (local government) credit surge

Certainly, Chinese credit surge has been extraordinarily rapid in historical terms. In 1994, Japan’s plunge was preceded by decades of lending. In 2007, the US recession was fueled by a massive debt pile that had accrued in three decades. In China, debt involves local government debt, which accumulated after the 2009 stimulus package.

During the Great Recession, China’s huge stimulus boosted confidence, supported the infrastructure drive, and prevented a global depression. But excessive liquidity led to speculation in equity and property markets.

As lending continues to boost state-owned enterprises (SOEs), China’s private debt to gross domestic product (GDP) ratio surged to 205 percent in 2015, which exceeded the ratio in the US (166%) and came close to Japan (214%).

These figures should be understood in the context, however. Since China’s government debt is low (16%), its total debt was less than that in Japan (281%) and the US (247%).

The most far-reaching differences, however, involve different levels of economic development.

Japan and the US are advanced economies, which enjoy relatively high living standards, but suffer from low growth and secular stagnation.

Unlike Japan and the US, China is an emerging economy and its growth rate remains over 3 times faster than that of the US and its growth potential remains substantial in the next 5-15 years, given peaceful regional conditions.

Savings, trade balance, external debt and debt plans

Domestic savings rate is vital cushion in times of deleveraging. In the past four decades, Japan’s savings rate has plunged dramatically (from 40% in 1970s to 18% today). Recently, it has enjoyed trade surplus, but only after substantial depreciation of the yen. In the US, domestic savings rate is low (17%) and the country has run trade deficits for 40 years.

In China, the reverse prevails. Until recently, savings rate has been relatively high (close to 50%), and trade balance remains on the surplus.

Total internal debt must also be seen in the light of external debt (foreign debt), which is the total debt a country owes to foreign creditors. In emerging markets, high external debt has typically triggered major crises. Yet, China has little external debt (8% to GDP), unlike the US (100%) or Japan (171%).

Unlike major advanced economies and other large emerging economies, China is also seeking to reduce its debt pile, by converting short-term bank debt into long-term bonds and redirecting credit to the private sector and households. In contrast, the US lacks a credible, bipartisan and medium-term debt-cutting plan, while Japan has opted for a huge monetary gamble, which is boosting its national debt.

Expect change – but after fall

Nevertheless, China can no longer rely on credit-fueled growth. So will things change and if so, when?

While economic reforms have been initiated in the past half a decade, they are likely to be fully implemented by the 19th Central Committee, which will be elected in the fall. Since economic change will not be sustained without political consolidation, leadership transition is likely to precede reform implementation.

China’s current credit target (13%) remains twice the growth rate (about 6.7%). As long as the gap between credit-taking and growth rate is substantial, it will continue to penalize the quality of growth.

Dr Steinbock is the founder of the Difference Group and has served as the research director at the India, China, and America Institute (USA) and a visiting fellow at the Shanghai Institutes for International Studies (China) and the EU Center (Singapore). For more information, see http://www.differencegroup.net/

The commentary was originally released by The European Financial Review on December 7, 2016  http://www.europeanfinancialreview.com/?p=12062

© 2016 Copyright Dan Steinbock - All Rights Reserved

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2022 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in