by Tyler Cowen
on January 7, 2016 at 2:14 pm
in Current Affairs, Data Source, Economics
To recap, China’s total debt is about $28 trillion, or roughly half the world’s entire debt.
Jim Edwards has further information.
What’s the net?
Are their reserves gone? They were buying up US debt like mad a few years ago.
U.S. TCMDO is about $60 trillion. $28 trillion is about half of global public debt, but why compare China’s total debt to global public debt?
Who owns the debt is the question, not just the size of it.
What 8 said.
US$28tn (pre-devaluation…) is China’s total stock of debt – household, business and government – whereas US$60tn, or thereabouts, is the global stock of government debt.
The last number I saw from McKinsey estimated TOTAL global debt at around US$200tn. This means China’s total debt is “only” around 14% of total global debt, on the same basis. That’s still far too high relative to China’s debt-bearing capacity, but the quotation there is simply incorrect.
Oh, that’s a relief: we all know how well Japan turned out.
As it turns out, you’re also wrong:
Check out Exhibit 31 of MGI’s January, 2010 report. With the exception of financial debt (i.e. Japan’s bloated banking sector, which, incidentally, has had a not-so-good time ever since), Japan’s household, non-financial corporate and government debt/GDP in 1990 were all pretty similar to China’s current levels. Not “way higher”. And this was for a much more developed economy, with much higher per capita real GDP, than China today.
“You mean Exhibit A. 13?”
MGI have updated their numbers for China – perhaps you’ve seen Exhibit E7 in this later version? It’s what I was referring to earlier. However, as I suspected – and this suspicion is now confirmed by your response – you don’t appear to have a grasp on the data upon which you’re opining.
“That’s a pretty massive exception, don’t you think? Most (or at least the plurality of) Chinese firms are financed by the banking sector.”
No, not when you consider how it’s calculated. “Financial Institutions” debt only includes wholesale sources of funding (bonds, commercial paper etc.) for financial institutions, not deposits, to avoid the double-counting issue that you obviously don’t understand given your remark.
As Japanese banks in the late 1980s were relatively larger wholesale borrowers – largely to fund offshore loan books – than Chinese banks today (which are extraordinarily domestically-focused and regulated to have low loan/deposit ratios), the higher relative “Financial Institutions” debt/GDP for Japan at the time is not relevant to China. More to the original point, it has no bearing on the debt-carrying capacity of the non-financial sectors of China’s economy.
“-Yeah: rich, old, and with timid central bankers.”
Ah, yes, Japan: the land that created QE has “timid” central bankers.
For many reasons your comparison remains problematic – Japan is not China (old and poor, remember?), and we (and the Chinese in particular) have really good reasons to hope that China does not follow Japan’s economic trends of the last three decades.
@Fyodor – thanks, nice stats, screen scraped for future reference. I thought the TC soundbite stat on China was inflated and my intuition was right this time.
hos much is in foreign currencies and how much is local ?
Shouldn’t the fastest growing economy have the most debt relative to GDP?
I would think it’s the richest country or some combination of rich/fast growing. Debt is a balance sheet item, GDP is an income statement item.
The rate of nominal growth has been slowing dramatically, so no. If nominal growth were accelerating you might have a point.
So, China has embraced Reaganomics where debt creates wealth, more debt creates more wealth.
What’s the problem?
I knew it was trap! China’s economy starts tanking, just before it busts, Chinese leaders give speech embracing supply-side economics. Ergo, supply side economics are to blame. The simplicity of this argument almost makes me wanna kill myself.
I think you are confusing Reaganomics( supply side economics ) with Keynesian BS the Spenders and Moneylenders in DC espouse.
Debt owed to whom, and for what? As I remember, in double entry accounting an entry on one side of the ledger requires an entry on the other. Is it cash? Is it investment in productive capital (like equipment and human capital)? Is it investment in speculative assets (like commercial real estate or financial assets)?
“Debt owed to whom, and for what?”
Indeed. The real danger is that the money has been invested in buildings that are not needed and heavy industry whose products cannot be sold for a product.
It would not surprise me if the Chinese government eventually has to step in as a massive social program and assume a lot of the corporate debt owned by individual Chinese savers.
should be “profit”, not “product”. Sorry
What’s the bad way that you mean it?
I would also wonder – is all their money debt based, or has some money been centrally spent into existence de novo?
put the us and china together and you have more than the world’s debt ?
what do you consider the world ?
How much is it for the USA? For China?
And here I quit the deranged J-leftie crowd as I thought their influence was waning….can I get back on board?
Is China’s debt yuan-based? If so, the PBoC can print money and pay it off. That may cause some inflation, but they are below their 3.5% target anyway. If they go back to running 5% inflation or so, that would reduce yuan-denominated debts every year…as well as stimulate real growth..
The worst solution would be to try to monetarily suffocate the economy into growth…
BTW, the Singapore stock exchange is off 18.3% YOY
Dear moderators could we please return to a world without Harding ?
In the first link, click its links until you reach the Business Insider article with the color graphs. It’s a very dramatic presentation. It appears that corporate debt service exceeds corporate profits.
Watch the reserves.
I’m wondering – what would be the effect of China selling off its large investment in US debt? As I understand it, they are basically financing our deficit spending.
Am I reading it wrong, or does the McKinsey report state that global total debt outstanding is $199 TRILLION? $28 Trillion != Half of $199 Trillion
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