China's Debt Problem Worse than Portugal

China's Debt Problem Worse than Portugal

Government officials in China, the largest foreign holder of U.S. debt, have been chastising the U.S. over Standard & Poor’s downgrade to AA+.

Guan Jianzhong, chairman of Dagong Global Credit Rating, has said the U.S. dollar is “gradually [being] discarded by the world,” and the “process will be irreversible.”

But China’s debt-to-GDP ratio is worse than the United States’ ratio. It is worse than insolvent Portugal, which is now relying heavily on the European Central Bank for help, and had to go to the International Monetary Fund to get a financial bailout.

The U.S.’s new AA+ rating from Standard & Poor’s is still higher than the one assigned to the Middle Kingdom. S&P has China’s debt rating stuck at AA-, the fourth highest level, due to its “sizable” contingent liabilities in its banking system.

China’s own system is jammed with rotten debt held in off-balance sheet state enterprises. Its countryside is littered with eerie, empty ghost towns. And Moody’s Investors Service says last month that China’s local debt was understated by hundreds of billions of dollars.

Despite that, the People's Daily said S&P’s downgrade of the U.S.'s credit rating "sounded the alarm bell for the dollar-denominated global monetary system.” China owns an estimated $1.16 trillion in U.S. debt. China prints yuan to hold down its value so as to keep its exports dirt cheap. It then uses that extra printed currency to buy U.S. debt.


Read more: www.foxbusiness.com...

This has been a topic of conversation in a few threads relating to the downgrade of the US credit rating. Officaly Chinas debt to gdp ratio is 17%. However, and people are now taking notice, that ratio might be way off.

This article is from July 5th and talks about Moody's, one of the crediting agencies, discovery that Chinese local governments are about a 1/2 trillion or more in debt.

Chinese Local Debt Might Be $540B More Than Estimated: Moody's

China's local government debt burden may be 3.5 trillion yuan ($540 billion) larger than auditors estimated, putting banks on the hook for deeper losses that could threaten their credit ratings, Moody's said on Tuesday.

Addressing the estimate by China's state auditor that its local governments have chalked up 10.7 trillion yuan of debt, Moody's said it found more potential loans after accounting for discrepencies in figures given by various Chinese authorities.

"The potential scale of the problem loans at Chinese banks may be closer to its stress case than its base case," Moody's said in a statement.

In view of that, the non-performing loan ratio for Chinese banks could be as high as 8-12 percent, compared with 5-8 percent in the base case and 10-18 percent in the stress case.

Unless China comes up with a "clear master plan" to clean up its pile of local government debt, the credit outlook for Chinese banks could turn negative, the ratings agency said.

In a bid to assuage investor worries about the potential souring of its massive local government debt, different Chinese authorities including the state auditor, the bank regulator and the central bank have

In the main article linked it goes into detail about Chinese off book money keeping, as well as how the Chinese are able to keep their currency artifically supressed in order to sell there items cheaply. The trade balance is then used to purchase US debt.

The actual debt to gdp ration for China may be as high as 89%. China, hich im surprised did not make the news, has had to approach the IMF as well as Europe Central Bank looking for help.

According to the article Moodys also discovered that Chinese Central Bank is in debt to the tune of 1.6 trillion and has increased credit availability to 200% of the gdp.

Other signs China is not in the position it claims to be in -
Chinese Curbs on Raw-Material Exports Break Rules, WTO Says

2009 - Geithner Says China Manipulates Its Currency

2010 - Where China hides its debt

2010 - Chinese debt and 2010

March 3 (Bloomberg) -- China’s hidden borrowing may push government debt to 96 percent of gross domestic product next year, increasing the risk of a financial crisis in the world’s third-biggest economy, Professor Victor Shih said.

“The worst case is a pretty large-scale financial crisis around 2012,” said Shih, a political economist at Northwestern University in Evanston, Illinois, who spent months researching borrowing transactions by about 8,000 local-government entities. “The slowdown would last at least two years and maybe longer,” the author of the book “Factions and Finance in China” said in a phone interview March 1.

Surging borrowing by local-government entities, uncounted in official estimates of China’s debt-to-GDP ratio, is the key reason for Shih’s concern. Harvard University Professor Kenneth Rogoff said Feb. 23 that a debt-fueled bubble in China may trigger a regional recession within a decade, while hedge-fund manager James Chanos has predicted a Chinese slump after excessive property investment.

As I have stated before, Chinas not as stable as it wants people to think it is. They can only do so much cooking of the books before it falls apart, and when it does, its going to be a massive disaster.

I think one of the main reasons China is massively torqued at the US right now is because of the credit downgrade (Chinas Credit rating is worse than the US). I dont think China was planning on that, and as a result I think they are in a very real danger of being explosed and having their charade exposed.

China has this mindset that the World would never walk away from them because, in their mind, the world must have their goods. China has become so set in that mindset that they felt they were completely immune to financial issues (which also goes hand in hand with their political ideology and the thought their system is perfect).

I would say they will be found out by the end of this year. I would say their government will not survive when their monetary system collapses.

This next year and a half will be intresting.


Edit to add - This scenario for China is coming close to coming right out of a Tom Clancy novel - namely The Bear and the Dragon. Everyting China has done to date is covered in one form or another in the book. The mindset of the Middle Kingdom is that of superiority an being invinceible.

Thoughts?

This thread was phenomenal up until this statement:

The mindset of the Middle Kingdom is that of superiority an being invincable.

Foreign Direct Investment in China.

China has been manipulated from the outside, and the only reason this happened was because of the breakdown of it's rule. It was deeply weakened around the 19th Century by Western Nations, and never really rebounded.

If you look at the FDI numbers you can see the influx of capital happening right around the same time it's borders were opened. (Kind of a no-brainer).

Anyway, that is all foreign interest. Foreign money spurred Chinese economic growth, and foreign money dictated how it would earn. China has been a Western pawn that sold out it's long history to the World.

The money controllers that brought business to China to export cheap products knew what they were doing. And the country is bound by the US dollar.

They aren't getting any key positioning in the world producing products for pennies. They are destroying their country with all the pollution from manufacturing. The Officials there sold out their nation.

(Oh, you beat me to making a China thread...)

Originally posted by boncho
They aren't getting any key positioning in the world producing products for pennies. They are destroying their country with all the pollution from manufacturing. The Officials there sold out their nation.

(Oh, you beat me to making a China thread...)

Hence the arrogance comment I made. While I agree about Chinas past with other countries interfering, that cannot really be stated as true for them right now. Their government is very much in control of their country.

While I agree they have destroyed their enviornment and sold out their people, it doesnt negate the fact that their arrogance is a direct result of that. China is the worlds factory, producing cheap items sold in almost every country on this planet.

They most certainly beleive the world cannot move on without them being involved in it. They beleive that the US needs China for our survival. This mindset is there because the current view is just that view. The world wants access to their markets and people.

The Chinese Government mindset is based on their misunderstanding of how the global system works. What would happen if the US walked away from China? They need our market far more than we need their industrial base.

The US has the ability to pick up the slack as a result of divorcing China where as China does not have that ability. The thought process of a country walking away from them is that of it would never happen. They truly think they are an absolute in any countries economy. They truly think that if they are not involved, then the country would completely fall apart.

Its that mindset that has created the mess tehy are in. Printing money like its going out of style means they are not taking into account inflation. They arent conerned with inflation because of their currency manipulation.

Trying to get a communist system of government to understand they cant just print more money and everything is ok is like getting a communist to pray.

They view the world through the way they think it should run, and now how it actually runs.

and sorry about the thread.. next time ill check with you first

Originally posted by Xcathdra
China's Debt Problem Worse than Portugal

S&P has China’s debt rating stuck at AA-,

Not quite what they mean by "stuck" in that context. S&P had *RAISED* the rating of China less than a year ago to that level.
And lets be honest here, the future of China is looking quite rosy for the forseable future even with a half billion more or less debt as outlined in the linked article. It certainly wouldnt make any difference to the US situation thats for sure.
Expect to see further rises for China in the future.

So with China on the up, future bright and getting raises in the S&P rating, I think they have the right to criticise the US who is slipping back, getting rating decrease and a #ty looking future with no bright outlook whatsoever.
Expect to see further falls for the USA in the future.

Edit - Moodys also raised the rating for China less than a year ago.


Edit 2 - Moodys also raised China's rating in 2007.
S&P also raised China's rating in 2006.


Edit 3 - in fact the more I look, the more I'm finding recent rating increases for China by both Moodys and S&P.
Yes, I think they have a right to comment on the American situation.

reply to post by Xcathdra

Hence the arrogance comment I made. While I agree about Chinas past with other countries interfering, that cannot really be stated as true for them right now. Their government is very much in control of their country.

I feel like it is arrogance of a the elite and also the disregard of their history. China has never sought out being a player in the global stage but after a humiliating defeat against colonial powers during the 19th Century, it went into the World Stage. Unfortunately for them, Communism wasn't a good model to adopt. And in my opinion, did not even fit in with their traditional beliefs.

I say that it is partly due to Western influence and manipulation over the past two hundred years that they let themselves get like this. I am not making excuses for them, in fact, I suppose I would be praising the West at the tactics that were used against the Middle Kingdom.

Just think what Sun Tzu would say about all this...

In any regard, it is a shame that a Nation with so much culture, history and scenery be broken down so badly. The amount of government waste, the amount of reckless chemical dumping, is eating away the nation.

They are definitely not positioned well for the global downturn.

(Oh, kidding about the thread. Happy to read yours.)

reply to post by alfa1

So with China on the up, future bright and getting raises in the S&P rating, I think they have the right to criticise the US who is slipping back, getting rating decrease and a #ty looking future with no bright outlook whatsoever. Expect to see further falls for the USA in the future.

China's assets are American debt, and American consumerism. (Not entirely but a large portion). If the US does bad, it does not bode well for the country.

Both pertinent points and sides of the same coin dont you think?
China is in a fragile position when it comes to a billion hungry mouths to feed, as well as having a large portion of natural disasters over time...
Their future in this regard looks no better than the fubar they have had for the last decade at least.
Their worlds biggest earth filled dam is looking pretty shakey etc....
The Chinese have a natural competing enemy right next door in India, as well as Several thriving economies in the neighbourhood to compete with too.Taiwan(a whole other kettle of fish)japan, and many others who p[roduce cheap goods ala the china model.
The fact is we are so plugged up with chinese and other cheap goods we are slling the crap to ourselves at weekend yard sales....
Look around at the plethora of crap that abounds at swap meets andd yard sales....they look like the dollar store but second hand.....

reply to post by alfa1


All of that was done prior to the discovery of missing / hidden debt. 17% going up to almsot 96% will have more shockwaves than the US downgrade did.

China has been manipulating currency and hiding debt. They are not as financially sounds as people, or crediting agencies think, as we are finding out.

reply to post by stirling


The argument though is China has been able to keep up with all of that because of their supposed superb financial record keeping and being above board. The problem is they ahve not been above board, and have in fact been misleading when it comes to their fical health.

I dont thin China could recover if the US completely collapsed.

I think the US would survive if China completely collapsed.

reply to post by Xcathdra


No way.

US is already dead. China is planning this for decades. They will make sure US will never bounce back up.

Not really unexpected. See, if the us is in the S***hole and cannot pay its debts, then whoever ones that debt is also in the S***hole.

Look at it this way, the us is standing in a puddle of poo right, and China owns a lot of its debt which puts the us with China on its shoulders.

Picture someone in a poo puddle with someone else being held on the first persons shoulders. Well, with the weight of this other person they begin to sink. Now, symbolically, when the first person sinks completely in, whose to hold the other person up out of the puddle. Well, noone. Do you see what I mean.

Eta: the bottom person is the US whereas the top one is China.

reply to post by Xcathdra


And what's the TRUE level of US debt including unfunded liabilities??

It's HUUUUUGGGEEE !!!!!

Originally posted by DarkSarcasm
Look at it this way, the us is standing in a puddle of poo right, and China owns a lot of its debt which puts the us with China on its shoulders.

Perhaps its more like the joke I heard many years back which goes something like...

If I owe the bank 100 dollars and cant pay, I'm in trouble.
If I owe the bank 100 million dollars and cant pay, the bank is in trouble.

reply to post by TribeOfManyColours


Lol.. I dont buy into that. The US is very much still alive.

Originally posted by backinblack
reply to post by Xcathdra

 

And what's the TRUE level of US debt including unfunded liabilities??

It's HUUUUUGGGEEE !!!!!

None of the debt reporting is based on unfunded liabilities. Nice try though.

reply to post by alfa1


Everyone is assuming China is financially sound, which is the farthest from the truth. They have been hiding their debt and have recently been caught doing that.

China was using the surplus from their currency manipulation to buy US debt. Since they got caught, that is pretty much done. Chinas comments about the days of buying US debt being overwith is not because of the downgrade, which is what China wants you to belive. Its because China cant afford it any longer because they are just as broke.

China has a AA- credit rating (that's a negative after the AA), it is worse than the US.

Originally posted by DrDanielT
China has a AA- credit rating (that's a negative after the AA), it is worse than the US.

Only reson for those ratings are the size of the countries and their total productivity. If you look at the numbers the rating should be lower, and the US will get another downgrade unless they do some serious changes.

The U.S.’s new double A+ rating “could go down more in a time frame of six months to 24 months,” to double-A, depending on government action to cut the deficit, John Chambers, managing director and chairman of Standard & Poor’s sovereign ratings committee tells FOX Business senior vice president and anchor Neil Cavuto in an interview on FOX News Saturday.

Source

They image below is a index with the ratings of diffrent countries over a timespan of 20 years. Theres also a comparisongraph between US and Chinas debt, allthou i doubt hidden debt is included.


Edit: Not sure about the size/productivity statement. (and added external link)

Originally posted by Mimir

Originally posted by DrDanielT
China has a AA- credit rating (that's a negative after the AA), it is worse than the US.

Only reson for those ratings are the size of the countries. If you look at the numbers the rating should be lower, and the US will get another downgrade unless they do some serious changes.

The reason they are lower has nothing to do with the size of the country at all. Feel free to take a gander at all of the debt China has been trying to hide, look at their currency manipulation, the fact they ahve extended credit to businesses at 200% of their GDP.

China is not an economic powerhouse. If they were they would not have to go to the IMF or the Euro banks to get loans.