China’s “Economic Miracle” is sinking into a quagmire of debt.
For years, the sheer scale of the problem was buried amid the propaganda push by the ruling Communist Party about the “Great Rejuvenation” of the nation.
It was also reinforced by the rush of major multinational corporations to relocate vast sways of their manufacturing to what is now the second-largest economy on the planet and the workshop of the world.
Doing it on the cheap with an abundance of low-paid and compliant workers brought untold richest and the emergence of “rust belts” dotted across major democracies.
In China, the byproduct was debt. Mountains of local government debt.
“Beijing is facing an economic minefield of its own making. All told, China’s current debt crisis represents a perfect storm,” Craig Singleton, of the Foundation for Defense of Democracies in Washington, said.
Bankrupt of ideas:
- The situation has rapidly deteriorated in the past decade.
- At the core of the problem is “hidden debt,” festering in government financial vehicles.
- More than half of the 31 “regional governments” face a “funding squeeze.”
- Analysts calculated that “hidden debt” was as high as 65 trillion yuan (US$9.6 trillion) by the middle of 2022.
Delve deeper: In 2018, S&P Global, one of the “Big Three” credit rating agencies, rolled out a report on the scale of the “credit risks” facing Beijing.
Warning from history: “The extent of off-balance-sheet borrowing among local governments isn’t known, but could be as high as 40 trillion renminbi ($5.78 trillion). That’s a debt iceberg with titanic credit risks,” S&P Global revealed.
State of play: The situation has spiraled out of control since then. A bungled “zero-Covid” policy has shattered the economy, which was already wobbling after a property sector crash. An aging and more assertive workforce has only added to the gloom as China’s political elite gather for the National People’s Congress in Beijing at the weekend.
Intensive care: “China’s runaway local debt poses a serious threat to the country’s overall economic health. [It also] has the potential to exacerbate existing socio-economic tensions, [such as] vanishing jobs, closed businesses and reduced wages,” Singleton, of the Foundation for Defense of Democracies, said as reported by the CNN network.
China Factor comment: The economy is in a mess and that is down to President Xi Jinping’s state-driven policies and his obsession with being the “chairman of everything.”