What Will $28 Trillion More Debt Do to China’s
Economy? By www.ProfitableInvestingTips.com China has replaced the USA as the focus of
too much debt compared to its gross domestic product. In the last five years Chinese debt
levels have accelerated as its economy has slowed. In short, what will $28 Trillion more
debt do to China’s economy? Business Insider writes about China debt to GDP. China’s total debt is about $28 trillion,
larger than that of the United States or Germany. Now the Chinese economy is slowing. But China
hasn’t stopped adding more debt. About five years ago, Chinese debt levels began accelerating
far faster than GDP was growing. In other words, as time goes by China adds more debt
and becomes less and less able to pay it off. A good portion of Chinese debt is in state
owned enterprises or local government. The general consensus was that this debt was China’s
problem and would not affect anyone or anything else. However that has changed. Yesterday the Chinese government again began
buying stocks to prop up its plummeting stock market. No one thinks that is sustainable.
And my colleague Linette Lopez noted yesterday that there is a capital-flight “doomsday scenario”
being floated by BAML which suggests that China only has about a year to a year and
a half of currency reserves on hand if it needs to defend a run against the yuan. China’s debt is not just going to disappear
by printing money as a lot of China’s business debt is denominated in dollars. So, what will
$28 Trillion more debt do to China’s economy? There Goes the Yuan The Communist managers of China’s “managed
capitalism” have enjoyed support of the Chinese people because of decades of economic
growth. That growth threatens to come to an end and rather than deal with secondary social
unrest as factories close and people lose their jobs, China is stimulating its economy
at the expense of its currency. Bloomberg Business writes about the People’s
Bank of China cutting its reserve ratio. China’s latest easing move signals that
shoring up growth is the government’s top priority even if doing so further weakens
the yuan or adds to leverage that threatens the longer-term health of the world’s second-biggest
economy. The People’s Bank of China said Monday that
it’s cutting the amount of cash the nation’s lenders must lock away. That move marked the
first time in four months that the central bank has used one of its traditional monetary-easing
tools, despite mounting signs of a weaker economy and a stock market in near-freefall. The action came days before Premier Li Keqiang
is expected to set the bar lower for gross domestic product with a 2016 target expansion
range of 6.5 percent to 7 percent, compared with last year’s goal of around 7 percent.
The renewed focus on growth could be at the expense of any effort to rein in ever-increasing
debt: Chinese banks extended a record amount of new loans in January. Meantime, the yuan
is down 3.6 percent against the dollar since October. In short what $28 Trillion more debt is doing
to the Chinese economy is causing more debt, slower growth and a cheaper Chinese currency.
The rest of the world will enjoy cheaper Chinese products at the expense of a trade war among
low cost producers! Read more in our article, Will Capital Flight Kill the Chinese Economic
Miracle. For more insights and useful information about
investments and investing, visit www.ProfitableInvestingTips.com.