China’s Companies Binged on Debt. Now They Can’t Pay the Bill.

Debt will kill the Chinese economy. This excellent article shows the tip of a very big ice berg. What we are seeing now are only the the failures that can not be hidden. Much has been hidden but can not be hidden forever. What we see now is like the light we see from lightening from a far distant but approaching storm. That storm will be upon us sooner than we realize.

China always defaults on everything, they want you investment which they pocket, any money invested in any chinese company is money thrown away. It's about as good as investing in something like bit coin which is also worthless just like every other alternate currency,you think you are gonna profit when countries can't keep their currency solvent? Fools

The incestuous relationship between banking and commerce (long controlled or prohibited by regulation the west) and the political elite are reasons why any comparisons to the market based economies in the west are spurious. What is means is that the problems will be dealt with on political manner based on the economics of the competitiveness of the firm but on the influence of the managers in the forbidden city. And because of the incestuous relationships the banking system will be used to continue the ponzi scheme of those who stay on the good side of the mandarins in Beijing.

For those comparing China to the US, you are making a big mistake. The US dollar is the world's reserve. You can't say the same about China. Hence it's give US policies makers more room to manoeuver.

I would find it helpful to have some insight into the lending side of the debt problem. Who is funding all these debt in China? My guess is the lion's share comes from ordinary people's lifesaving. I also wonder what portion of the offshore lenders are ultimately onshore sources. If the bulk of China's debt is funded domestically, then it's a tractable problem. The government is likely to insulate ordinary savers from financial ruin, lest social turmoils multiply. My guess is the ultimate resolution may be a mix fleecing of the rich (China is officially communist), extending maturity of loans, central government taking over provincial debt, in-kind payments of principal with goods and buildings, and hopefully some real reform. Final thought. A quick glance at Investopedia, Wikipedia, and CNBC shows Shanghai+Shenzhen stock capitalization at about $7 trillion and bond market at $13 trillion. For comparison NYSE+NASDAQ is about $25 trillion, with bonds at $40 trillion. So given how much smaller Chinese capital market is, perhaps loans in China have to be riskier to fill the gap.

I can't decide which is a bigger house of cards China USA EU With $17 trillion in negative yields, mountains of corporate, public, and consumer debt the systemic risk is enormous. Hope we can make the Repo Turn into the new year without crashing the whole thing.

I wish the article would present similar numbers for the US and possible the EU as well. It would help readers put things into perspective and make their own opinions. After all, companies borrowing too much (from whatever sources) and filing for bankruptcy later own seems to be a recurring theme of the last 20 years wherever you look.

good..let china benefit from the same economic miracles facing other capitalist economies.. but when this goes down twisted..it will be a big deal...

Any comparative perspective is missing from this. France, Italy, the UK, and especially the US, have absolutely colossal corporate, private and government debts, with the US proving time and time again to be the most profligate. America cannot afford to reign in spending because the house of cards would promptly collapse and cannot afford to raise taxes or interest rates because the entire system would come down around government's ears. Most US corporations couldn't stay in business if they had to adopt sustainable financial plans, and most certainly most citizens and governments at all levels would be in serious, immediate difficulties. The US government couldn't begin to pay even the Chinese portion of its debt. It's a bit distressing to see the NYT and WP (as well as cable TV & the pulp media in the US and Britain) mindlessly running story after story critical of China and Iran without any inkling they're propagating bias. By all means those countries have their issues but compared to whom? How about a harder look at Saudi Arabia or, better yet, closer to home?

Dictator Xi will go down in history as the man who killed the Chinese economic miracle. Since the death of Mao the hard work and hopes of the Chinese people, along with support from the West, have greatly improved the standard of living and given it a generous trade balance. However, Mr Xi decided (a) to revert to the wildly despised and discredited (and non-Chinese) Marxist philosophy. Furthermore, he clings to that to keep himself and his henchmen in power although it is likely to bankrupt China and devastate the hard work of the people and 50 years of social progress when China was moving beyond Maoism.

Same thing applies here in the US. The corporate debt is at all time high, and the household debt relative to GDP is twice as big as Chinese. Consumer spending that's been holding up the economy is debt-fueled, in other words. If/when the recession hits, people/companies won't be able to service their debt and the economy could spiral down in a vicious cycle. It may be true that Chinese economy is at higher risk than the US. But all fast-growing economies are. The Chinese debt warning has been there for years and they've been managing fine. And they'll probably continue to manage as long as their growth rate doesn't get much worse. Likewise we'll probably manage ours as long as we don't hit recession. That's enough a reason on both sides to strike a deal and end the trade war, unless you want to cut off your nose to spite the face.

Commentor Rick Morris has a Good Point: What about PRC holding US Treasury Debt? How does this affect America , Canada, and the rest of the World? This has been in the back of my mind since watching the 2011 HBO Movie "Too Big to Fail". Where the Hank Paulson Character (attending a Chinese Banquet) is "chided" by a PRC Finance Minister about PRC holding much of the US Treasury Debt. This article did Comparison(s) WRT China's Internal Businesses' Debt to Detroit Mi Bankruptcy. How about an article the pending China Debt Crisis and it's implication on US Bonds? and the US Economy in general.

A giant, grotesque Ponzi Scheme.

You never know what to make of these articles. China's "bad debt" trope has been around for at least 15 years. And it's not limited to China. Does anyone remember the looming U.S. commercial real estate loan disaster that....went away with nary a whisper back in 2008-9? In essence China seems to have hit on a policy of monetizing bad debt (which creates money) and then requiring banks to put more money into reserve deposits with the central bank (which sucks money back out of the economy). Bad debts are socialized into the finance apparatus and accounts for private banks are cleared for a new round of lending (both bad and good). The debt on the national accounts goes up but as long as the bondholders are paid it doesn't matter. As with many other phenomena deemed "impossible", like the U.S. trade deficit that has become a permanent feature after nearly 50 years, the system seems to work as long as in spite of the doomsday scenarios.

Oh, oh: to paraphrase Churchill, if China economically sneezes will the rest of the world catch a recession cold?

They own the printing presses. They can do it.

"China’s Companies Binged on Debt." 1. Yes, the latest data (2 qt 2018) show that they reached 163 % of the GDP 2. But the majority of the debt was accumulated by State owned companies and financed by State owned banks 3. Thus, it is the Chinese Government that holds the lions share of the debt - i.e. the Chinese tax payer Of more concern to me is the debt bing of US companies. 4. The "BBB" rated US corporate debt market, has been growing since 2007 by 400% to almost 3 trillion dollars 5. By now, about half of all corporate bonds are at the lowest "investment grade" levels BBB 6. The major reason for this alarming development (seen by many specialist to be similar to debt binge in the housing market) has been the ultra - low interest rate of the Federal Reserve that has allowed marginal competitive firms to issue bonds to investors desperate to look for higher returns (Pension funds included) 7. If the BBB bond bubble should collapses then, again, it will be the American tax payer who pays the bill

The entire world is now hooked on debt--like Ohio's down-and-out are hooked on heroin and fentanyl. Led by the United States' demagogue King of Debt, and abetted by falsely suppressed interest rates, right-wing governments and corporations have taken on massive debt with no mechanism or plan to account for it. Conservative-led Wall Street and other markets have blindly approved, sending indexes to all-time highs despite the obvious catastrophic risk. Nothing makes sense. Chaos reigns.

After Tiananmen, around the time of the 1991 fall of the USSR, Deng Xiaoping told his senior people, Jiang, Zhu, Li, et al, that the CCP's legitimacy came down to the economy. The had to give the Chinese people better living standards or they'd go the way of the USSR. Unlike Russia in 1991, the CCP's bloodletting was just a couple of decades in the past though, so losing power could have been fatal personally for not a few CCP members, especially the high ups, whose families were doing pretty well financially as a result of their political power while most were very poor. It's 2-1/2+ years since Xi met Trump for the first time, in April 2017. Shortly afterward, Trump started the process that led to Lighthizer's 301 investigation that fall and tariffs in mid-2018. . China's economy is hurting from what Trump is doing, and their leaders are desperately trying whatever they can to boost growth. The opening of the debt floodgates began in 2015, when their stock market tanked, and never really stopped. Nothing about China is immune to the laws of economics. Tick tock, goes their economy. It's not going to be the end of the world, but it could be the end of Xi and his clique with all that's happening today -- HK, Xinjiang, South China Sea, Taiwan, hacking, bad trade behavior, etc. The Chinese aren't stupid. Their elite know that Xi et al are making China a pariah in the eyes of many. It'll be interesting to see how this plays out. They mocked us in 2008. What goes 'round...

This is a REAL threat to the global economy.

It takes some time for folks to understand that nothing major happens in the PRC that isn't permitted/encouraged by the totalitarian CCP. Now with Winnie as Emperor for life we shall see a rather quick hardening of the arteries followed by strokes caused by lack of variety in decisions. The fall back position will be further enslavement of an already lightly or slightly enslaved population. The new enslavement device will be "social credit" score and personal debt.

The next Big Short if you have the courage.

Banks were told to pull back on easy cash. Allow more bankruptcies. A tightrope, indeed. But at least they’re trying to address the problem. Here, the continued low interest rates encourage yet more borrowing. And this president wants even lower rates. So much for an independently FED. So much for teaching profligate companies....some discipline.

Chinese debt issues might soon become our own. As more Chinese state owned firms default, what is to stop the Chinese government from selling off its over one trillion dollar investment in US government debt? They'll need the money. The more they sell, the lower the value of the bonds. The lower the value of the bonds, yield rates on that debt rise. Hmmm...

The Party can keep the party going until it runs out of foreign currency reserves. That's the bottom line. So long as it has foreign currency reserves it can cover the losses. Once that's gone, all bets are off.

The Renminbi is and always has been Monopoly money. The CPC will just sweep this under their giant rug and arrest anyone who complains. Do business wit the Communist Party of China at your own risk, they cannot be trusted ever.

China is imploding -- it is hoped as this progresses to a critical point that they do not lash out into the world as distracting self savior

As the Chinese economy grows in size to almost equal our own a smaller growth rate sometimes multiplies into more growth than a higher growth rate did in previous years when the size of the economy was much smaller. But the size of the growth rate will usually be inverse to the size of the economy. The countries that usually achieve the hightest growth rates tend to be very tiny economies where one new industry was introduced. This article would be more enlightening if it compared the debt rate of China to that of other countries, but it doesn't do that. Instead it only informs us that debts are growing. Well, larger economies tend to have higher total debts than smaller economies. The West has been predicting a recession in China for decades based upon a slower growth rate. The real story has been the opposite.