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Moody’s Cuts Its China Rating for the First Time Since 1989
Keywords: China Credit Rating, Moody's China,
Moody's Investor's Service downgrades China's credit rating to A1 from Aa3. Moody's predicts a slowdown in growth for China. GDP growth for 1st quarter 2017 was 6.9%. Total debt has grown from 149% of gross domestic product in 2008, to 213% in 2013, and is now 253%, according to JP Morgan. The problem is that ever higher levels of credit have supported growth and more of this is coming from the shadow banking sector. Higher levels of debt in future years from the already high levels will weigh heavily on growth, leading to an eventual slowdown in the economy's growth rate.
China's future and the experience of Japan and Mexico
05/29/2010
China devotes 3% of GDP to education compared to 5% in developed countries. The underinvestment in education and human capital can lead to stagnation in per capita incomes. This happened in Mexico. The inability to deal with bad loans in the banking system can lead to slowing economic growth. This happened in Japan. The bulldozing of schools of migrant workers reflects a failure to address balanced growth and a breakdown in assigning the right priorities.
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The global economy in 2015-2016- slowing growth in China, Brazil, Russia and Turkey, as growth picks up in the U.S. and India, and Europe emerges from the eurozone debt crisis
11/29/2015
High debt to GDP ratios in China, Brazil and Turkey lead to slowing growth. India is the exception in emerging markets as foreign investment increases and GDP growth is above 7%, with a boost from halving of oil prices. Europe sees the need for more quantitative easing, and the U.S. makes a slow recovery. Russia may see an improvement after a large devaluation of the ruble. Argentina's prospects are seen as improving with a change in government. Canada sees a change from the drift in the last years of the Harper government and the hollowing out of the industrial sector, with the election of Justin Trudeau. Overall the situation in 2015-2016 is a marked improvement compared to ten years earlier in 2005, as debt issues are tackled seriously in Europe and the U.S. and governance in the private sector improves.
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Quarterly GDP growth in China in 2017
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Is China's GDP growth for 1st quarter 2015 the 7% official figure, or below 5% as estimated by Capital Economics, Citi and the Conference Board
04/27/2015
Experts say the official numbers for GDP are "fudged" or simply way off. The Bureau of National Statistics does not release the methodology, inflation assumptions and other basis for the GDP figures, making many of the numbers hard to reproduce. Transparency is seriously missing in the figures. As Communist party chief of Liaoning provincee, prime minister Li Keqiang, looked at the GDP numbers with skepticism, considering instead figures on electricity consumption, rail cargo, bank loans, as more reliable indicators of economic activity and growth.
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China's big problem in 2015- 8000 local government financing vehicles running up debt even when about half of borrowing goes to rollover old loans
01/28/2015
As the debt is run up it takes more units of borrowing to create one unit of investment. Over 4 units of borrowing in 2015 compared to less than 2 units of borowing before 2007, is what it now takes to create one unit of investment, according to JP Morgan. Where this adds to the glut in building or if its just a pet project or dream of city mayors the productivity of the investment is much lower, with additional risks in borrowing. And the collateral to support it of land sales is now increasingly unreliable with developers making cuts as property markets are slowing. The central government fearing slowing growth is pushing problems down the road, say experts. The IMF estimates that local government debt will reach 56% of GDP by 2019. The danger is that this will depress China's growth to below 5-6% in coming years witht a lot of the new borrowing simply going to rollover old loans, a situation Japan faced in the 1990's when the expression zombie loans was coined. This has implications for major manufacturing exporters Germany, Japan, the U.S., and for commodity exporters Australia, Canada, Brazil, S. Africa, Chile, which may look to India, Indonesia and other developing countries for exports.
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Krugman on China, "shadow banking," bubble in housing and construction, and shrinking role of consumer spending in GDP growth
04/14/2010
Krugman says China's economic planners are no better then planners in the U.S. and Europe who failed to take action against the housing bubble.
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The effort appears to have failed leaving companies as dependent as before on the bank loans. The surge
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Fitch Ratings analyst Charlene Chu's analysis of China's shadow banking and unreported private debt
08/01/2010
CHina's private debt is over twice China's GDP according to Fitch Ratings analyst Charlene Chu
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Loose monetary policy in China in 2010-2011
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Difficulties of making a soft landing after the huge lending boom in China in 2009-2010 continues into 2011. Inflation and other risks from this lending continue. The burden of large local government debt in China and non-performing loans in the banking system. China's local government debt is estimated to be between 27% of GDP to 42% of GDP. Because of the opaqueness of the financial system the exact amount is not clear and estimates vary.
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The relatively small effects of slowing growth in China on the U.S. economy in 2015, and some positive factors
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WIth only 1% of U.S. GDP related to U.S. exports to China, and Chinese direct foreign investment in the U.S. being less than 1% of all foreign investment in the U.S., China's slowdown is not likely to affect the U.S., according to Easwar Prasad, former IMF expert on China. Positive factors are the slower growth in prices of manufactured products imported from China, the lower prices of commodities such as oil, copper and other metals for an extended period, and bigger markets in China for U.S. service industries, internet and entertainment as Chinese consumer spending plays a larger role in China's GDP.
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Kenneth Rogoff on the financial crisis in China with debt exceeding 270% of GDP, shadow banking, real estate bubble and unsustainable local government finances
08/24/2015
Kenneth Rogoff of Harvard, is an expert on financial and debt crises, with the most extensive quantitative study of debt crises of 66 countries with Carmen Reinhart. The research is published in the book, "This Time Is Different." He discusses the debt crisis in China with the NYT's Andrew Ross Sorkin, saying China is not immune to the problems from an alarming buildup of debt. He says the reason China was seen as impervious to debt problems is because of the high savings rate of 30%, the millions of migrants moving to cities for manufacturing work, and government control of markets. Actually he sees China as a really good example of "This Time Is Different," the notion that somehow it can't happen here. The result is along delay before an event and the sudden speed of the implosion once it hits. The effects Rogoff sees are the risks to commodity producing countries such as Russia, Brazil, and other countries dependent on exports. He says China's large foreign exchange reserves offers a way for it to manage the debt crisis.
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Moody’s Cuts Its China Rating for the First Time Since 1989
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China's debt situation in 2014 with total debt to GDP of 250%, and the risks to the economy
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New York Times 08/12/2015
China's Debt crisis
07/29/2010
The debt of local governments estimated at between 27% of GDP by Dragonomics and the China's National Audit Office, to a much larger 42% by Prof. Shih of Northwestern University.
Grouped Articles
Asia Goes on a Debt Binge as Much of World Sobers Up
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China's 'Shadow Banks' Fan Debt-Bubble Fears
Wall Street Journal 06/24/2013
China's Silver Linings Playbook
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Wall Street Journal 06/25/2013
Central Bankers Hone Tools to Pop Bubbles
Wall Street Journal 07/08/2013
Charlene Chu Is the 'Rock Star' of Chinese Debt Analysis
Wall Street Journal 08/22/2013
China's local government debt poses a risk for the economy
06/17/2010
China's local government debt is estimated to be in the range of 27% to 42% of GDP. Loans by banks to local government financing vehicles face high risk of default.
Grouped Articles
Asia Goes on a Debt Binge as Much of World Sobers Up
Wall Street Journal 05/24/2013
China's 'Shadow Banks' Fan Debt-Bubble Fears
Wall Street Journal 06/24/2013
China's Silver Linings Playbook
Wall Street Journal 06/24/2013
I.M.F. Tells China of Urgent Need for Economic Change
New York Times 07/17/2013
China's Credit Levels Echo U.S. Crisis
Wall Street Journal 09/08/2013
China Think Tank Offers Reform Wish List
Wall Street Journal 10/30/2013
China's credit ratings downgrade for rising debt in 2017 and the echoes of Japan in the 1980's
05/25/2017
Linked Articles
Moody’s Cuts Its China Rating for the First Time Since 1989
WSJ 05/24/2017
In Downgraded China, Echoes of Japan’s Boom and Bust
WSJ 05/24/2017
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