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(South China Morning Post)   China's hidden local government debt rises to over half of GDP at US$8.2tril. 这很好   (scmp.com) divider line
    More: Scary, Economics, local government debt rises, Goldman Sachs report, Local government financing vehicles, Tax, half of GDP, Goldman Sachs, Corporate finance  
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557 clicks; posted to Business » on 29 Sep 2021 at 8:35 AM (9 weeks ago)   |   Favorite    |   share:  Share on Twitter share via Email Share on Facebook



23 Comments     (+0 »)
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2021-09-29 7:53:57 AM  
Between this and Evergrande it looks like the property bubble is going to burst. Not sure what the ramifications will be, but I hope it is contained to China.
 
2021-09-29 8:49:05 AM  

desertfool: Between this and Evergrande it looks like the property bubble is going to burst. Not sure what the ramifications will be, but I hope it is contained to China.


It's so much more complicated than that. They don't have a property bubble in the same way the US or EU historically has property bubbles. All of this comes down to how the central and local government of a hybridized command economy and free market drive economic activity. To hit their economic goals China's government has used the industrial and construction sectors to drive raw GDP. That's why even though China is the second largest economy, they are the third largest consumer market. Their "organic economy" is substantially smaller than their reported GDP would indicate. It's also why unwinding their industrial and construction sectors is a such Gordian knot. If they stopped building at the rate they have been it wouldn't be unreasonable to see their GDP drop by 10-40 percent.


I don't think this is going to explode on them. Capital liquidity requirements and transparent accounting don't exist like in the US. What's scarier is that there is really good evidence that their GDP isn't what they have been officially reporting. There was a Brookings Institute study claiming that China's GDP is likely 15% smaller than the official value and that they are over stating growth. If that is true than they are in even bigger trouble than the currently bad numbers would indicate.
 
2021-09-29 9:01:39 AM  

b2theory: desertfool: Between this and Evergrande it looks like the property bubble is going to burst. Not sure what the ramifications will be, but I hope it is contained to China.

It's so much more complicated than that. They don't have a property bubble in the same way the US or EU historically has property bubbles. All of this comes down to how the central and local government of a hybridized command economy and free market drive economic activity. To hit their economic goals China's government has used the industrial and construction sectors to drive raw GDP. That's why even though China is the second largest economy, they are the third largest consumer market. Their "organic economy" is substantially smaller than their reported GDP would indicate. It's also why unwinding their industrial and construction sectors is a such Gordian knot. If they stopped building at the rate they have been it wouldn't be unreasonable to see their GDP drop by 10-40 percent.


I don't think this is going to explode on them. Capital liquidity requirements and transparent accounting don't exist like in the US. What's scarier is that there is really good evidence that their GDP isn't what they have been officially reporting. There was a Brookings Institute study claiming that China's GDP is likely 15% smaller than the official value and that they are over stating growth. If that is true than they are in even bigger trouble than the currently bad numbers would indicate.


Can you elaborate on that?
 
2021-09-29 9:06:35 AM  
The LGFVs are a tool for governments to borrow money without it appearing on their balance sheets

That's...clever?
 
2021-09-29 9:09:40 AM  
Ha.  Amateurs.
 
2021-09-29 9:12:37 AM  

sleze: Can you elaborate on that?


You say you have X money coming in with Y amount of reserves, and get loans based on that.

If you actually have x-15%, well.  That is in the "damnable lies" category of business.
 
2021-09-29 9:14:19 AM  
Putting it another way: you are not as flexible dealing with crises you cannot turn around and pay bills as well, in just about every way, your lie really affects the willingness of folks to do business with you.

China's big enough, however, it may be able to coast through that.
 
2021-09-29 9:17:02 AM  

b2theory: I don't think this is going to explode on them


Blaming the coming mess on the USA will be child's play for the CCP.  But when cheap money ends, they are taking the world's largest hair cut, one way or the other.
 
2021-09-29 9:17:25 AM  
Look, have you noticed how everything is "made in China"?

Now, have you noticed how there are "supply chain issues" affecting literally every aspect of life?

I'm guessing China already imploded.
 
2021-09-29 9:21:36 AM  
The "house of cards" implosion continues.
 
2021-09-29 9:24:30 AM  
China does not have an official account of local governments' hidden debt, as it is technically against the law, and private estimates by different institutions vary significantly.

I think the problem is that Communists suck at Economy. Nobody knows what's going on.
 
2021-09-29 9:27:38 AM  

Phil McKraken: China does not have an official account of local governments' hidden debt, as it is technically against the law, and private estimates by different institutions vary significantly.

I think the problem is that Communists suck at Economy. Nobody knows what's going on.


Naw. Indiana is the exact same way.
 
2021-09-29 9:37:26 AM  
Where are Fark's resident tankies to tell us that this is perfectly fine?
 
2021-09-29 9:38:45 AM  

Phil McKraken: China does not have an official account of local governments' hidden debt, as it is technically against the law, and private estimates by different institutions vary significantly.

I think the problem is that Communists suck at Economy. Nobody knows what's going on.


I think you've nailed it with the second part, but not that the Chinese have been especially bad at the economy. But their widespread suppression of the truth easily slips into building toward massive crisis. The government believes, and they may be right, that their hold on power is tenuous, so they devote a lot of attention to suppressing any criticism or failure. That not only makes real problems less likely to get addressed, it creates a vicious cycle where everyone learns to lie. So even the rulers in the government lose awareness of what's really going on.
 
2021-09-29 10:04:08 AM  

sleze: b2theory: desertfool: Between this and Evergrande it looks like the property bubble is going to burst. Not sure what the ramifications will be, but I hope it is contained to China.

It's so much more complicated than that. They don't have a property bubble in the same way the US or EU historically has property bubbles. All of this comes down to how the central and local government of a hybridized command economy and free market drive economic activity. To hit their economic goals China's government has used the industrial and construction sectors to drive raw GDP. That's why even though China is the second largest economy, they are the third largest consumer market. Their "organic economy" is substantially smaller than their reported GDP would indicate. It's also why unwinding their industrial and construction sectors is a such Gordian knot. If they stopped building at the rate they have been it wouldn't be unreasonable to see their GDP drop by 10-40 percent.


I don't think this is going to explode on them. Capital liquidity requirements and transparent accounting don't exist like in the US. What's scarier is that there is really good evidence that their GDP isn't what they have been officially reporting. There was a Brookings Institute study claiming that China's GDP is likely 15% smaller than the official value and that they are over stating growth. If that is true than they are in even bigger trouble than the currently bad numbers would indicate.

Can you elaborate on that?


Think about it like the financial crisis where people were inflating their incomes to secure the ability to finance more debt than they could afford. GDP is vaguely like "income". If their GDP is lower than the official numbers indicate, it means they have less ability to repay their debt than the current assessments are assuming.
 
2021-09-29 11:15:44 AM  

b2theory: desertfool: Between this and Evergrande it looks like the property bubble is going to burst. Not sure what the ramifications will be, but I hope it is contained to China.

It's so much more complicated than that. They don't have a property bubble in the same way the US or EU historically has property bubbles. All of this comes down to how the central and local government of a hybridized command economy and free market drive economic activity. To hit their economic goals China's government has used the industrial and construction sectors to drive raw GDP. That's why even though China is the second largest economy, they are the third largest consumer market. Their "organic economy" is substantially smaller than their reported GDP would indicate. It's also why unwinding their industrial and construction sectors is a such Gordian knot. If they stopped building at the rate they have been it wouldn't be unreasonable to see their GDP drop by 10-40 percent.


I don't think this is going to explode on them. Capital liquidity requirements and transparent accounting don't exist like in the US. What's scarier is that there is really good evidence that their GDP isn't what they have been officially reporting. There was a Brookings Institute study claiming that China's GDP is likely 15% smaller than the official value and that they are over stating growth. If that is true than they are in even bigger trouble than the currently bad numbers would indicate.


But who holds the debt? In the case of Evergrande there could be worldwide exposure. Is there much of a market for the LGFV bonds (assuming they are bonds) outside of China?
 
2021-09-29 11:23:35 AM  
Not a shock. The local governments were getting kickbacks from the overly inflated housing prices, and china just sent all that money directly to the central bank instead of going to the local gov first and then the bank

Its gonna fark a lot of things up
 
2021-09-29 1:19:58 PM  

desertfool: b2theory: desertfool: Between this and Evergrande it looks like the property bubble is going to burst. Not sure what the ramifications will be, but I hope it is contained to China.

It's so much more complicated than that. They don't have a property bubble in the same way the US or EU historically has property bubbles. All of this comes down to how the central and local government of a hybridized command economy and free market drive economic activity. To hit their economic goals China's government has used the industrial and construction sectors to drive raw GDP. That's why even though China is the second largest economy, they are the third largest consumer market. Their "organic economy" is substantially smaller than their reported GDP would indicate. It's also why unwinding their industrial and construction sectors is a such Gordian knot. If they stopped building at the rate they have been it wouldn't be unreasonable to see their GDP drop by 10-40 percent.


I don't think this is going to explode on them. Capital liquidity requirements and transparent accounting don't exist like in the US. What's scarier is that there is really good evidence that their GDP isn't what they have been officially reporting. There was a Brookings Institute study claiming that China's GDP is likely 15% smaller than the official value and that they are over stating growth. If that is true than they are in even bigger trouble than the currently bad numbers would indicate.

But who holds the debt? In the case of Evergrande there could be worldwide exposure. Is there much of a market for the LGFV bonds (assuming they are bonds) outside of China?


Everything I have read is that nearly all of the debt is in China.
 
2021-09-29 3:10:47 PM  

desertfool: Between this and Evergrande it looks like the property bubble is going to burst. Not sure what the ramifications will be, but I hope it is contained to China.


I doubt it.  I think it will crush a lot of surrounding countries (Vietnam, Laos, Philippines, etc).  Initially, major stock markets will drop, just because.  Long term, manufacturing will slow down causing prices to go up and shortages on good made in China.  This all will go on until China figures out how to hide the debt and their "numbers" return to "normal".
 
2021-09-29 3:43:16 PM  

b2theory: desertfool: b2theory: desertfool: Between this and Evergrande it looks like the property bubble is going to burst. Not sure what the ramifications will be, but I hope it is contained to China.

It's so much more complicated than that. They don't have a property bubble in the same way the US or EU historically has property bubbles. All of this comes down to how the central and local government of a hybridized command economy and free market drive economic activity. To hit their economic goals China's government has used the industrial and construction sectors to drive raw GDP. That's why even though China is the second largest economy, they are the third largest consumer market. Their "organic economy" is substantially smaller than their reported GDP would indicate. It's also why unwinding their industrial and construction sectors is a such Gordian knot. If they stopped building at the rate they have been it wouldn't be unreasonable to see their GDP drop by 10-40 percent.


I don't think this is going to explode on them. Capital liquidity requirements and transparent accounting don't exist like in the US. What's scarier is that there is really good evidence that their GDP isn't what they have been officially reporting. There was a Brookings Institute study claiming that China's GDP is likely 15% smaller than the official value and that they are over stating growth. If that is true than they are in even bigger trouble than the currently bad numbers would indicate.

But who holds the debt? In the case of Evergrande there could be worldwide exposure. Is there much of a market for the LGFV bonds (assuming they are bonds) outside of China?

Everything I have read is that nearly all of the debt is in China.


That is profoundly beneficial for China's ability to contain and at least struggle along without addressing the underlying concerns.  After all the Chinese Central Bank can order the Chinese banks to extend the lone duration or take haircuts and the Chinese Banks don't exactly have a remedy.  The real issue is addressing the exposure of their citizens to too many losses as to avoid potential unrest.  The Chinese government demands stability above everything else, so expect any losses to be shunted onto the banks and the banks muddle along so that everything is swept under the rug which will lead to the next crisis.

I would expect some rich businessmen and women to be perp walked for corruption and seizing of assets to send a message and give a PR boost that the media can focus on instead of the property debacle.
 
2021-09-29 7:17:08 PM  
There are a lot of data used for international comparisons, but they do hide a lot of bizarre behaviors. Japan is famous for having HUGE DEBTS as a percentage of GDP, but it has extremely low consumer debt and almost no state or local debt. When their government bonds come up for sale, they get bought up by domestic investors because they are pretty much the only game in town.

But the US? The federal, state, local debt tiers exist. Then you have all the corporate debt, consumer debt, and all the various school bonds and various districts.

Apparently, China is doing the same thing. And then there is the whole shadow economy. Some people upthread are saying everything is fine because the government is overstating growth anyway. OK. Fine. So nobody really knows for sure what is going on, and that is supposed to make everyone feel better.

When I was a bubble gum chewer, I used to blow bubbles inside of bubbles. You could nest 4 or 5 when you got really good at it.

When this pops, we are going to need a lot of peanut butter, is all I'm saying.
 
2021-09-29 8:15:50 PM  

desertfool: Between this and Evergrande it looks like the property bubble is going to burst. Not sure what the ramifications will be, but I hope it is contained to China.


China will invade Taiwan.
 
2021-09-30 1:46:18 AM  

Myrdinn: Ha.  Amateurs.


Japan and Greece: Pathetic.
 
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