Is China Going to Continue Paying Its Bills?

 We’ve all been hearing that China is going to control the next century because they are turning into a massive economy that will soon surpass the USA.  But not so fast.  They might not be able to pay their bills a whole lot longer.  History shows us that when nations are having serious internal problems they may look to start a war so the people quit focusing on internal and start projections their anger on the external.  Don’t be surprised if China invades Taiwan amid all this Middle East drama.  It would be the smart thing to do.  Would America get into a ground, sea and air war with China if that happened tomorrow?  Probably not.  And China most likely realizes that.

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“A government may write a contract with a company to get a loan of, say, 100 million yuan,” Stevenson-Yang says, adding that it might be presented “as a land sale.”

“There’s an understanding that the land will be turned back once the money is repaid, but that understanding may not be written down.”

Adds Stevenson-Yang, “I think the problem is just too big to resolve.”

An accurate measure of off-the-books debt would be a tall order, says Dexter Roberts, director of China affairs at the Mansfield Center at the University of Montana and a senior fellow at the Atlantic Council.

“What we do know is that it is very large and growing,” Roberts says.  

“Beijing does seem determined to avoid the moral hazard of bailing out local governments. The trouble with that is the indebtedness of local governments has become so severe that it is spilling over and affecting many regular Chinese as well, as is true with elderly who are seeing their pension payments delayed or civil servants who aren’t getting paid on time.”

In short, the debt that’s weighing down the former Chinese growth juggernaut has to settle somewhere and it will be likely to fall on the heads of those least likely to be able to afford it.

“The people of China,” says Stevenson-Yang.

She adds, speaking on the question of how Beijing might approach the problem: “I have no idea what their plan is other than to hide head in sand. I actually think they are bureaucratically stuck.”

Economist Michael Pettis commented in a tweet thread, on the social media platform now known as X, that it would probably be best if Beijing provides only temporary relief while forcing local governments to resolve the debt themselves.”

The “extremely difficult bind” local governments found themselves in, with dwindling revenue that crimps ability to repay debts, was due to a confluence of factors, says Roberts. 

“The pandemic lockdowns plus crackdown on the overleveraged property sector which was probably necessary but has been so damaging to the overall economy, plus the drop in incomes and the ability to spend brought on by the overall economic hard times.”

Oxford’s Magnus says, “The central government has seemingly started sending inspectors in to get a proper picture of local government debt, and there is talk from finance pros and some policy people about debt swaps, under which expensive local government debt would be swapped for cheaper central government bonds.

“This would, at best, buy a bit of time, but it’s just replacing debt with debt and doesn’t really solve the problem.”

In the meantime, China’s private property giants – Evergrande, Country Garden and Vanke, among others, continue to reel in a market with no takers. Local governments that have indebted themselves on the basis of property assets that are now overvalued and will not be bailed out from on high are in a bind.

“Emigrate,” said J Capital Research’s Stevenson-Yang when asked what she might do if she was running an indebted local government in China.

https://americanmilitarynews.com/2023/10/short-changed-can-china-pay-the-bills/