Best of the Week
Most Popular
1. Will Gold Price Breakout? 3 Things to Watch… - Jordan_Roy_Byrne
2.China Invades Saudi Oil Realm: PetroDollar Kill - Jim_Willie_CB
3.Bitcoin Price Trend Forecast, Paypal FUD Fake Cryptocurrency Warning - Nadeem_Walayat
4.The Stock Market Trend is Your Friend ’til the Very End - Rambus_Chartology
5.This Isn’t Your Grandfather’s (1960s) Inflation Scare - F_F_Wiley
6.GDX Gold Mining Stocks Fundamentals - Zeal_LLC
7.US Housing Real Estate Market and Banking Pressures Are Building - Chris_Vermeulen
8.Return of Stock Market Volatility Amidst Political Chaos and Uncertain Economy - Buildadv
9.Can Bitcoin Price Rally Continue After Paypal Fake FUD Attack? - Nadeem_Walayat
10.Warning Economic Implosion on the Horizon - Chris_Vermeulen
Last 7 days
Is War "Hell" for the Stock Market? - 19th Apr 18
Palladium Bullion Surges 17% In 9 Days On Russian Supply Concerns - 19th Apr 18
Breadth Study Suggests that Stock Market Bottom is Already In - 19th Apr 18
Allegory Regarding Investment Decisions Made On Basis Of Government’s Income Statement, Balance Sheet - 19th Apr 18
Gold – A Unique Repeat of the 2007 and How to Profit - 19th Apr 18
Abbeydale Park Rise Cherry Tree's in Blossom - Sheffield Street Tree Protests - 19th Apr 18
The Stock Market “Turn of the Month Effect” Exists in 11 of 11 Countries - 18th Apr 18
Winter is Coming - Coming Storms Will Bring Out the Best and Worst in Humanity - 18th Apr 18
What Does it Take to Create Living Wage Jobs? - 18th Apr 18
Gold and Silver Buy Signals - 18th Apr 18
WINTER IS COMING - The Ongoing Fourth Turning Crisis Part2 - 18th Apr 18
A Stock Market Rally on Low Volume is NOT Bearish - 17th Apr 18
Three Gold Charts, One Big Gold Stocks Opportunity - 17th Apr 18
Crude Oil Price As Bullish as it Seems? - 17th Apr 18
A Good Time to Buy Facebook? - 17th Apr 18
THE Financial Crisis Acronym of 2008 is Sounding Another Alarm - 16th Apr 18
Bombs, Missiles and War – What to Expect Next from the Stock Market - 16th Apr 18
Global Debt Bubble Hits New All Time High – One Quadrillion Reasons To Buy Gold - 16th Apr 18
Will Bitcoin Ever Recover? - 16th Apr 18
Stock Market Futures Bounce, But Stopped at Trendline - 16th Apr 18
How To Profit As Oil Prices Explode - 16th Apr 18
Junior Mining Stocks are Close to Breaking Downtrend - 16th Apr 18
Look Inside a Caravan at UK Holiday Park for Summer 2018 - Hoseasons Cayton Bay Sea Side - 16th Apr 18
Stock Market More Weakness? How Much? - 15th Apr 18
Time for the Gold Bulls to Show their Mettle - 15th Apr 18
Trading Markets Amid Sound of Wars - 15th Apr 18
Sugar Commodity Buying Levels Analysis - 14th Apr 18
The Oil Trade May Be Coming Alive - 14th Apr 18
Big Cap US Stocks Fundamentals - 13th Apr 18
Jaguar Land Rover Cuts 1000 Jobs on Diesel Sales Slump, Long-term Discovery Sport Review - 13th Apr 18
Stock Market SPX May Tangle with the 50-day MA - 13th Apr 18
Longtanding Chinese War: Intrigue & Betrayal - 13th Apr 18
How I Own My Gold - 13th Apr 18
ISupply Energy Consumer Warning - Never Put Your Account Into Credit! - 13th Apr 18
SPX Resistance May Prompt A Massive Short Squeeze - 12th Apr 18
Stock Market High Volatility is Not Consistently Bearish for Stocks - 12th Apr 18

Market Oracle FREE Newsletter

Trading Lessons

How Debt Differs in China, the US and Japan

Interest-Rates / China Debt Crisis Jan 12, 2017 - 06:29 AM GMT

By: Dan_Steinbock

Interest-Rates Unlike advanced economies, China remains better positioned to overcome its debt challenges, due to the nature of is debt, level of development and economic fundamentals. Change is coming – but after fall.

In recent months, China has managed to stabilize growth. Nevertheless, stabilization has required capital controls, continued lending and repeated interventions. Due to efforts to stabilize the renminbi, for instance, China’s foreign-exchange reserves fell to $3 trillion last month; the lowest since spring 2011.


Some observers have concluded that China has opted for a path that proved so costly to Japan in the 1990s and the US in 2007. Yet, realities are a bit more complex.

Dramatic (local government) credit surge

Certainly, Chinese credit surge has been extraordinarily rapid in historical terms. In 1994, Japan’s plunge was preceded by decades of lending. In 2007, the US recession was fueled by a massive debt pile that had accrued in three decades. In China, debt involves local government debt, which accumulated after the 2009 stimulus package.

During the Great Recession, China’s huge stimulus boosted confidence, supported the infrastructure drive, and prevented a global depression. But excessive liquidity led to speculation in equity and property markets.

As lending continues to boost state-owned enterprises (SOEs), China’s private debt to gross domestic product (GDP) ratio surged to 205 percent in 2015, which exceeded the ratio in the US (166%) and came close to Japan (214%).

These figures should be understood in the context, however. Since China’s government debt is low (16%), its total debt was less than that in Japan (281%) and the US (247%).

The most far-reaching differences, however, involve different levels of economic development.

Japan and the US are advanced economies, which enjoy relatively high living standards, but suffer from low growth and secular stagnation.

Unlike Japan and the US, China is an emerging economy and its growth rate remains over 3 times faster than that of the US and its growth potential remains substantial in the next 5-15 years, given peaceful regional conditions.

Savings, trade balance, external debt and debt plans

Domestic savings rate is vital cushion in times of deleveraging. In the past four decades, Japan’s savings rate has plunged dramatically (from 40% in 1970s to 18% today). Recently, it has enjoyed trade surplus, but only after substantial depreciation of the yen. In the US, domestic savings rate is low (17%) and the country has run trade deficits for 40 years.

In China, the reverse prevails. Until recently, savings rate has been relatively high (close to 50%), and trade balance remains on the surplus.

Total internal debt must also be seen in the light of external debt (foreign debt), which is the total debt a country owes to foreign creditors. In emerging markets, high external debt has typically triggered major crises. Yet, China has little external debt (8% to GDP), unlike the US (100%) or Japan (171%).

Unlike major advanced economies and other large emerging economies, China is also seeking to reduce its debt pile, by converting short-term bank debt into long-term bonds and redirecting credit to the private sector and households. In contrast, the US lacks a credible, bipartisan and medium-term debt-cutting plan, while Japan has opted for a huge monetary gamble, which is boosting its national debt.

Expect change – but after fall

Nevertheless, China can no longer rely on credit-fueled growth. So will things change and if so, when?

While economic reforms have been initiated in the past half a decade, they are likely to be fully implemented by the 19th Central Committee, which will be elected in the fall. Since economic change will not be sustained without political consolidation, leadership transition is likely to precede reform implementation.

China’s current credit target (13%) remains twice the growth rate (about 6.7%). As long as the gap between credit-taking and growth rate is substantial, it will continue to penalize the quality of growth.

Dr Steinbock is the founder of the Difference Group and has served as the research director at the India, China, and America Institute (USA) and a visiting fellow at the Shanghai Institutes for International Studies (China) and the EU Center (Singapore). For more information, see http://www.differencegroup.net/

The commentary was originally released by The European Financial Review on December 7, 2016  http://www.europeanfinancialreview.com/?p=12062

© 2016 Copyright Dan Steinbock - All Rights Reserved

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2018 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules