Victor Shih, an assistant professor of political science at Northwestern University, reckons debt at these entities reached $1.7 trillion by the end of 2009. Most will need continuing funding, so that figure could more than double by the end of 2011. Because Beijing supports both the banks and the local governments, this lending should arguably be added to the central government’s debt figures. Doing that, Mr. Shih estimates, would make China’s debt-to-GDP ratio, around 20% in 2009, closer to 71%. By 2011 that could rise to 96%.
Michael Pettis from Beijing University argues that China’s reserves of $2.4 trillion - arguably $3 trillion - are a sign of weakness, not strength. Only twice before in modern history has a country amassed such a stash equal to 5pc-6pc of global GDP: the US in the 1920s, and Japan in the 1980s. Each time preceeded depression.
The global economy is messing up GDP and balance of payment accounting. Think about US companies building their factories in China, whose revenues are included in the Chinese GDP and whose exports from China are added in the Chinese current account.
For all the huge trade surplus that China is purportedly ‘enjoying’ it turns out that little benefit is being derived from it. Over 50% of China’s exports are produced by foreign corporations.
As most of the world bets on China to help lift the global economy out of recession, Mr. Chanos is warning that China’s hyperstimulated economy is headed for a crash, rather than the sustained boom that most economists predict. Its surging real estate sector, buoyed by a flood of speculative capital, looks like “Dubai times 1,000 — or worse,” he frets. He even suspects that Beijing is cooking its books, faking, among other things, its eye-popping growth rates of more than 8 percent.
My view is that markets are still in denial about the structural wreckage of the credit bubble. There are two more boils to lance: China’s investment bubble; and Europe’s banking cover-up. I fear that only then can we clear the rubble and, very slowly, start a fresh cycle.
Less then 200 years ago, the United States represented 1.8% of world economy. It peaked above 30% in the eighties and is now below 25%. China was above 30% in 1820, went back down below 5% and is now catching up quickly.
Courtesy of Financial Times
