China fact of the day

Given that non-financial total corporate debt is estimated by McKinsey to amount to $12.5tn, Chinese companies are paying on a nominal basis some $812bn in interest payments each year. In real terms, this amounts to $1.35tn. This is not only significantly more than China’s projected total industrial profits this year; it is slightly bigger than the size of a large emerging economy such as Mexico.

The entire FT discussion is here.


Here is another China fact - 'Andrew Roberts from RBS says China accounted for 85pc of all global growth in 2012, 54pc in 2013, and 30pc in 2014. This is likely to fall to 24pc this year. “If there is only one statistic that you need to know in the world right now, this is it,” he said.'

Is this because of the decline in activity in China or the rise in activity elsewhere?

" this amounts to $1.35tn. This is not only significantly more than China’s projected total industrial profits this year;"

So? Profits are calculated after interest paid aren't they?

Yes but it quite likely (i.e., for sane amounts of leverage) means that the companies on average do not earn their cost of capital

How do these figures compare to over developed countries?

Large scary numbers, but meaningless unless normalized to something like GDP per capita.

Total industrial profits don't count as a denominator for normalisation? A noisy signal I guess, but still gives you an idea of the orders of magnitude.

To whom is this $1+T per year being paid?

Sounds like "If you are in a hole, keep digging."

I think they learned this from us.

Companies are going to pay someone. They are either going to pay owners as dividends or pay lenders interest.

If t a company had better profits ahead, it would want to pay interest. After all, the if profits are growing the lender is entitled to nothing but his money back.

I can't get to the article because it's paywalled. Can anyone explain to me what this means?

"Chinese companies are paying on a *nominal* basis some $812bn in interest payments each year. In *real* terms, this amounts to $1.35tn."

What's the distinction between real and nominal payments in a single year, over which inflation can't be that high? Is this some purchasing power parity adjustment?

A rich country of 200 million people attached to a work farm/colony/cannon fodder plantation of 900 million people.

Is this just a comment on the structure of corp finance in China, i.e. more heavily reliant on debt in general and bank loans in particular than the US, where stock markets form a larger percentage of the financial capital stock?
Also, more capital intensive businesses will tend to demand and support more debt than other businesses. To the extent China has been in a physical investment boom, it makes sense that a large portion of that value was financed through debt issuance.

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