Beijing is left surrounded by a Great Wall of debt

Excessive borrowing by local governments and rampant spending have triggered a $11 trillion crisis

Welcome to the 24th edition of Between The Lines. This week we look at China’s debt “time bomb.” It could be one hell of a big bang. Also, we focus on Europe’s relationship with Beijing and the Party’s incursion into Chinese universities. Let’s get started.

China is surrounded by a Great Wall of debt that is threatening to crumble, burying the world’s second-largest economy. Excessive borrowing by local governments and rampant spending triggered a financial health warning from credit ratings agency Moody’s on Tuesday.

Earlier this week, The Wall Street Journal warned of a ticking “time bomb,” a recurring theme for China Factor fans. Cue the WSJ:

Cities and provinces across the country have accumulated a massive amount of hidden debt following years of unchecked borrowing and spending. 

“The International Monetary Fund and Wall Street banks estimate that the total outstanding off-balance-sheet government debt is around US$7 trillion to $11 trillion. That includes corporate bonds issued by so-called local-government financing vehicles,” the WSJ said.

Still, “no one knows” what the actual total is as Beijing struggles to contain a property sector meltdown while dealing with soaring unemployment among the young, and anemic consumer spending. Geopolitical tension with the United States has only added to the chaos.

The European Union has warned China over subsidies. Photo: File

Great Expectations? More A Tale of Two Cities 

Another week, another China summit. This time President Xi Jinping will hold “face-to-face talks” with the European Union’s top officials, Ursula von der Leyen and Charles Michel, in Beijing tomorrow.

Expectations of a successful outcome are as low as winning the EuroMillions Lottery. Politico pointed out that there was “much to worry about” and “little to expect,” adding:  

While the two EU leaders have a lot to talk to Xi about – from the war in Gaza to potential conflict in Taiwan, from climate change to trade imbalances – there’s little expectation in Brussels that Beijing is going to change tack.

“I think we need to be slightly realistic that there’s not a kind of single outstanding deliverable which will be crowning the summit,” a senior EU official said as reported by Politico.

Jian Junbo, the deputy director of the Center for China-Europe Relations at Fudan University, echoed that view. “Much like the US-China summit, [it] will not resolve the most serious disagreements,” he said as translated by Sinification.

Great Expectations? More A Tale of Two Cities: Beijing and Brussels.

China has tightened its grip on academia. Photo: Xinhua

Military incursion into Chinese civilian universities

China’s ruling Communist Party has steadily built links between civilian universities, the military and security agencies. In 2019, the Australian Strategic Policy Institute revealed that “those efforts accelerated in the past decade.”

Since then, the Central China Normal University in Wuhan appears to have been added to the list. The Chinese city was, of course, at the epicenter of the Covid-19 outbreak in 2019. Intelligence Online picked up the story this week with the headline:

Wuhan university to get new civil air defense and chemical defense facilities.

“[The] Central China Normal University [has been] picked to become a center of excellence in the hard sciences. [It] is investing in chemistry and nuclear physics laboratories, [as well as] the security of its entire campus,” Intelligence Online stated.

And finally …

Is she making a comeback? Maybe. Li Ziqi became a Chinese internet sensation with her “rustic-chic videos of her idyllic life in rural Sichuan.” Check this out on the much-missed China Project site.