China rapid debt rise was because of property so China economy is not at extreme risk

China’s debt-to-GDP ratio is the sum of corporate debt, household debt, and government debt all together as a portion of GDP. This ratio is currently around 250 to 260 percent of GDP. Globally, China is in the middle of the pack – higher than most developing but lower than most developed. Now think about at China’s relative stage of development. It is right in the middle. Common sense then says that China’s debt ratio is where it should be.

Over the last 10 years, the debt ratio in China increased by 100 percentage points. Every country that has grown at that rate has had a financial crisis. Market watchers then argue that China will certainly crash. So why is it that China survived this period of rapid debt growth without a crash?

China did not have a private property market until the early 2000s. The Chinese people previously had housing provided by the state, but then housing was privatized. From 2004 onwards, land prices soared, driving up property values by 600 percent over the last 10 years.

However, China land prices are half the prices in comparable cities in India.

So the debt level rise is understandable and due to the unique initiation of private property. The pricing levels are reasonable and sustainable.

China’s domestic saving rate is 48% which amounts to almost $6 trillion of new savings each year. This also supports a higher safe debt level. China is borrowing its own savings.

State transferred $822 billion in land to private sector in 2017

Property developers’ demand for purchasing land grew as the property market destocked excessive inventories, pushing China’s total revenue from land transfer to surpass CNY5.2 trillion (USD822 billion)in 2017, setting a new high.

Property developers purchased 255 million square meters of land in 2017, up 15.8 percent from a year earlier.

Unbalanced growth in consumption and investment is because of the difference between rural and urban

Unbalanced growth is actually the key to China’s rapid growth. It is the result of rural to urban migration. Urbanization is good for economic growth. Rural to urban migration also explains why consumption shares have become so low and investment shares of income so high. In subsistence farming, households spend almost everything they produce and save very little. Those who move from rural to urban see their incomes triple over a few years and their savings rates skyrocket. Urban consumption as a share of industrial output is around 30% versus rural agriculture at 70%.

Hokou Reform would fix consumption balance and remove the trade surplus

Hukou restrictions put make 40% of those in chinese cities without state city medical, retirement and other benefits. They are illegal within their own country.

Removing hukou restrictions would boost consumption, by around 2% of GDP. Chinese urban “illegals” would get benefits and could spend more money without needing to save in case they get sick.

China’s current account surplus is approximately 2 percent of GDP, so this policy reform would turn China from a trade surplus to a trade neutral or deficit country.

China is introducing some points based system for allocating new Hukou. It is not clear how rapidly these and other policies will take to reach full allocation of Hukou and benefits. At end of 2017, the number of people holding Beijing hukou reached 13.6 million, while the city’s permanent population totaled 21.7 million in the same period.

18 thoughts on “China rapid debt rise was because of property so China economy is not at extreme risk”

  1. You can post links like I do, below. Make sure that, instead of linking to evidence-free allegations, the link to evidence like this: “Global Shadow Banking Monitoring Report”. The Financial Stability Board’. http://www.fsb.org/2015/11/global-shadow-banking-monitoring-report-2015/. (It ranks China #11 in shadow bank assets-to-GDP). China free trade rank? There’s no definition and, indeed, no such thing. All trade is regulated everywhere at all times. If you choose an objective measure, like compliance with WTO obligations, however, you’ll see that China is #1 and America is #38. China debt? According the the Bank for International Settlements, China’s overall debt leverage was 257.8 percent of GDP at the end 1Q 2017, slightly up from 257 percent at the end of 2016. The non-financial corporate leverage ratio declined to 165.3 percent at the end of March from 166.3 percent at the end of 2016. China’s growth occasioned the debt and China’s growth will repay it, as it has done for 65 years, without problems. You can find the latest figures in the BIS Statistics Explorer: http://stats.bis.org/statx/toc/CRE.html. Brad Setser on how we got here and how China cheats 7/10/2018 at CFR. I’m a fan of Brad’s but he’s almost the only currency expert who thinks China cheats. Everyone else points to the fact that the value of the RMB against a basket of its trading partners’ currencies has been steady, predictable and transparent. Ordos? Since 1950, China has built 600 cities with populations over a million and a few have given rise to stories of ‘ghost towns’. But real ghost towns are communities that have died, while China’s empty towns are signs of approaching birth, not death, as author Wade Shepard, who has visited most of them, attests, “I’ve been chasing reports of deserted towns around China and have yet to find one. Over and over, I would read articles in the international press claiming that China is building towns that are never inhabited–only to find something

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  2. No one else has a professional government that successfully practices predictive economics, either. We’re accustomed to being governed by amateurs, as President Trump explains, “People say you don’t like China. No, I love them,” he said. “But their leaders are much smarter than our leaders. And we can’t sustain ourselves with that. It’s like, take the New England Patriots and Tom Brady and have them play your high school football team.” President Donald Trump.https://www.boston.com/sports/new-england-patriots/2015/07/06/donald-trump-says-tom-brady-and-the-patriots-are-just-like-china

    Reply
  3. China owns the banks and the debt and both are assets According to the St. Louis Fed, Chinese ‘debt’ has an ROI of 200%-300%.

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  4. I disagree. The risk does not necessarily come from debt. The risk comes from speculation. Speculation is real estate, speculation in stocks and speculation in businesses. The high growth must stop and when it does the wheels will fall off. China is ready for the collapse.

    Reply
  5. You can post links like I do below.Make sure that instead of linking to evidence-free allegations the link to evidence like this: Global Shadow Banking Monitoring Report””. The Financial Stability Board’. http://www.fsb.org/2015/11/global-shadow-banking-monitoring-report-2015/. (It ranks China #11 in shadow bank assets-to-GDP).China free trade rank? There’s no definition and”” indeed no such thing. All trade is regulated everywhere at all times. If you choose an objective measure like compliance with WTO obligations however you’ll see that China is #1 and America is #38. China debt? According the the Bank for International Settlements China’s overall debt leverage was 257.8 percent of GDP at the end 1Q 2017 slightly up from 257 percent at the end of 2016. The non-financial corporate leverage ratio declined to 165.3 percent at the end of March from 166.3 percent at the end of 2016. China’s growth occasioned the debt and China’s growth will repay it as it has done for 65 years without problems. You can find the latest figures in the BIS Statistics Explorer: http://stats.bis.org/statx/toc/CRE.html.Brad Setser on how we got here and how China cheats 7/10/2018 at CFR. I’m a fan of Brad’s but he’s almost the only currency expert who thinks China cheats. Everyone else points to the fact that the value of the RMB against a basket of its trading partners’ currencies has been steady predictable and transparent. Ordos? Since 1950 China has built 600 cities with populations over a million and a few have given rise to stories of ‘ghost towns’. But real ghost towns are communities that have died while China’s empty towns are signs of approaching birth not death as author Wade Shepard who has visited most of them attests “I’ve been chasing reports of deserted towns around China and have yet to find one. Over and over I would read articles in the international press claiming that China is building towns that are never inhabited–only to find someth”

    Reply
  6. No one else has a professional government that successfully practices predictive economics either. We’re accustomed to being governed by amateurs as President Trump explains “People say you don’t like China. No I love them” he said. “But their leaders are much smarter than our leaders. And we can’t sustain ourselves with that. It’s like take the New England Patriots and Tom Brady and have them play your high school football team.” President Donald Trump.https://www.boston.com/sports/new-england-patriots/2015/07/06/donald-trump-says-tom-brady-and-the-patriots-are-just-like-china

    Reply
  7. China owns the banks and the debt and both are assets According to the St. Louis Fed Chinese ‘debt’ has an ROI of 200{22800fc54956079738b58e74e4dcd846757aa319aad70fcf90c97a58f3119a12}-300{22800fc54956079738b58e74e4dcd846757aa319aad70fcf90c97a58f3119a12}.

    Reply
  8. I disagree. The risk does not necessarily come from debt. The risk comes from speculation. Speculation is real estate speculation in stocks and speculation in businesses. The high growth must stop and when it does the wheels will fall off. China is ready for the collapse.

    Reply
  9. You can post links like I do, below.

    Make sure that, instead of linking to evidence-free allegations, the link to evidence like this: “Global Shadow Banking Monitoring Report”. The Financial Stability Board’. http://www.fsb.org/2015/11/global-shadow-banking-monitoring-report-2015/. (It ranks China #11 in shadow bank assets-to-GDP).

    China free trade rank? There’s no definition and, indeed, no such thing. All trade is regulated everywhere at all times. If you choose an objective measure, like compliance with WTO obligations, however, you’ll see that China is #1 and America is #38.

    China debt? According the the Bank for International Settlements, China’s overall debt leverage was 257.8 percent of GDP at the end 1Q 2017, slightly up from 257 percent at the end of 2016. The non-financial corporate leverage ratio declined to 165.3 percent at the end of March from 166.3 percent at the end of 2016. China’s growth occasioned the debt and China’s growth will repay it, as it has done for 65 years, without problems. You can find the latest figures in the BIS Statistics Explorer: http://stats.bis.org/statx/toc/CRE.html.

    Brad Setser on how we got here and how China cheats 7/10/2018 at CFR. I’m a fan of Brad’s but he’s almost the only currency expert who thinks China cheats. Everyone else points to the fact that the value of the RMB against a basket of its trading partners’ currencies has been steady, predictable and transparent.

    Ordos? Since 1950, China has built 600 cities with populations over a million and a few have given rise to stories of ‘ghost towns’. But real ghost towns are communities that have died, while China’s empty towns are signs of approaching birth, not death, as author Wade Shepard, who has visited most of them, attests, “I’ve been chasing reports of deserted towns around China and have yet to find one. Over and over, I would read articles in the international press claiming that China is building towns that are never inhabited–only to find something very different upon arrival. The New South China Mall had a lot of empty shops but, by the time I arrived, it turned out to be a thriving entertainment center; Dantu showed me that an initially stagnant new town can become populated and come alive and I found that Xinyang’s new district, called a ‘ghost town’ since 2010, hasn’t even been built yet”.

    In 2010, all of these cities had under 50,000 population
    1. Ordos
    2. Dantu
    3. Pudong
    4. Wujin
    5. Zhengdong
    6. ZhuJiang
    7. Zhengzhou
    8. TianDucheng
    9. Lanzhou
    10. XiangLuowan

    Today they’re 90% filled: Ordos went from 40,000 to 2 million in seven years

    https://www.forbes.com/sites/wadeshepard/2016/04/19/an-update-on-chinas-largest-ghost-city-what-ordos-kangbashi-is-like-today/#449927062327

    Don’t worry. Be happy! China will be fine.

    Reply
  10. No one else has a professional government that successfully practices predictive economics, either.

    We’re accustomed to being governed by amateurs, as President Trump explains, “People say you don’t like China. No, I love them,” he said. “But their leaders are much smarter than our leaders. And we can’t sustain ourselves with that. It’s like, take the New England Patriots and Tom Brady and have them play your high school football team.” President Donald Trump.https://www.boston.com/sports/new-england-patriots/2015/07/06/donald-trump-says-tom-brady-and-the-patriots-are-just-like-china

    Reply
  11. I disagree. The risk does not necessarily come from debt. The risk comes from speculation. Speculation is real estate, speculation in stocks and speculation in businesses. The high growth must stop and when it does the wheels will fall off. China is ready for the collapse.

    Reply

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