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De Omnibus Dubitandum - Lux Veritas

Friday, October 28, 2016

Will China Trigger the Next Global Recession?

China’s debt growth rate has become the focus of some discussions and, fair enough, from comparing the outright levels, it may seem that China can collapse at any moment. Daniel Fernandez suggested this in his article "Has China Reached Its Debt Limit?" in Mises Wire. In response to the government’s monetary expansion stimulus plan after the 2008 financial crisis, China’s corporate sector did indeed leverage up quickly, followed by an equally fast pace of leveraging in the household sector. However, in order to avoid comparing apples with oranges, we need to take a closer look by putting these numbers into perspective. Using the same data source as used by Fernandez, we find that China’s total debt as a percentage of GDP was 254 percent by the end of 2015. Debt-to-GDP ratio of corporate, government, and household sectors stood at 170 percent, 44 percent, and 40 percent respectively.

For government and household sectors, both started from considerably low levels until the last administration kicked in a four-trillion yuan (RMB) stimulus plan in 2009. Government debt-to-GDP ratio, which was kept in the mid 30s in the first decade of this millennium, now stood at 44 percent by the end of 2015. Household’s debt-to-GDP ratio was at 11 percent in 2006 and almost doubled to 19 percent in 2007 and then doubled again to 40 percent by the end of 2015. The leveraging up of households happened exactly as the Chinese society was undergoing rapid urbanization as well as when the government launched its 2009 stimulus.......To Read More...

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