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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.
Grouped Articles
Debt That Once Boosted Its Cities Now Burdens China
Wall Street Journal 01.28.2015
China’s First-Quarter Growth Slowest in Six Years at 7%
Wall Street Journal 04.15.2015
A Warning on China Seems Prescient
New York Times 08.24.2015
China facing full-blown banking crisis, world's top financial watchdog warns
The Telegraph 09.19.2016
China’s Economy Grows 6.9%, but Warning Signs Persist
The New York Times 04.17.2017
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
Trade Fight With U.S. Complicates China’s Campaign to Contain Debt
WSJ 06.19.2018
Missed Bond Payment in Xinjiang Stirs Chinese Debt Fears
WSJ 08.14.2018
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