China’s Debt To GDP 300% – Free PDF Download

DEBT IN DEVELOPED ECONOMIES?

• If the economy grows faster then the debt will also increase.
• It is but natural for most of the developed economies.
• USA & Japan has a debt problem, too.
• Its debt to GDP ratio is 106% & 250% respectively.
• These are large numbers. But they are fairly accurate and well-known.
• Hence the investors invest accordingly looking at the Debt & GDP figure.

• That isn’t the case with China’s debt. Officially, it is a small number: 47.60%.
• Unofficially, it’s hard to figure it out.
• Reason: the government is both the lender and the borrower.
• One branch of the government lends money to another branch of government.

FOR EXAMPLE

• Government-owned banks, for instance, lend money to State Owned Enterprises and Town Village Enterprises.
• In India for example, SBI is lending huge amount to BHEL, SAIL in huge amount without much security.

WHAT THIS MEANS?

• It means the money borrowed by State Owned Enterprises from the Government-owned banks doesn’t show in the official figure of Public Debt of China.
• That’s why the official figure of China’s debt to GDP shows below 50%.
• And the unofficial figure is estimated at around 300%.

UNOFFICIAL ESTIMATES

• The Institute of International Finance, Inc. (IIF) is a global association of financial institutions.
• Created by 38 banks of leading industrialized countries in 1983 in response to the international debt crisis of the early 1980s.

SO WHAT IS THE PROBLEM?

• It creates bubble in the economy & the potential of a systemic collapse.
• Like the Greek crisis.
• In Greece, government-controlled, banks and pension funds & the creditors were government-owned enterprises.
• The situation could be more severe in China.
•  The government simultaneously owns banks, pension funds, and common corporations.
• Banks also lend funds to land developers.
• They are behind the country’s “investment” bubble, one of the engines of the Chinese economy.
• But there’s one big difference:
• China is huge compared to Greece.
• So if there’s a financial crisis in China, the impact on the global economy will be huge, too.

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