China is left surrounded by a Great Wall of Debt
Beijing is paying the price for off-the-books borrowing and a legacy of secrecy as the economy stalls
China’s Great Wall spanned more than 21,000 kilometers or 13,000 miles and was built to keep the country’s enemies out. Then, the one-party state built the Great Firewall to keep free speech and democracy out.
Now, the ruling Communist Party has built a Great Wall of Debt to keep the truth from coming out. Naturally, President Xi Jinping’s regime will deny this.
But even questionable data from China’s National Bureau of Statistics confirmed this week that the spiral of stagnation continues. Indeed, the writing on the Great Wall of Debt has existed for some time. Beijing has conveniently ignored it.
“Trillions in hidden debt drove China’s growth. Now it threatens its future,” The Wall Street Journal reported at the weekend.
“Local governments racked up as much as [US]$11 trillion in off-the-books debt to build industrial districts, resorts, transit systems, and housing projects, including many that failed,” it said.
The numbers:
- Second-quarter growth was just 4.7% compared to 5.3% in the first three months, the National Bureau of Statistics revealed.
- That was below China’s official annual growth target of 5%.
- Consumer confidence also dipped as retail sales slowed to 2% in June compared to a 3.7% rise in May.
- The unemployment rate among young people aged between 16 to 24 stayed in low double digits. But the real figure could be as high as 46%.
History’s wildest property boom has turned to bust.
The Economist
Between the lines: “Stagnating household credit growth, consumer confidence, and personal savings rates hint at no sign of a genuine recovery,” Louise Loo, of Oxford Economics, said in a commentary.
Delve deeper: In April, The Economist painted a harrowing picture of the state of the world’s second-largest economy. “It is China’s gravest economic test since the most far-reaching of Deng Xiaoping’s reforms began in the 1990s,” it stated.
Big picture: “Last year the country achieved growth of 5%, but the pillars of its decades-long miracle are wobbling,” The Economist said.
The bottom line: “Its famously industrious workforce is shrinking, history’s wildest property boom has turned to bust, and the global system of free trade that China used to get richer is disintegrating.”
China Factor comment: The Party’s Third Plenum is taking place this week as the CCP elite meets behind closed doors. “The econ-focused event is rife with buzzwords and Xi propaganda. Less so with substantive reform,” James Palmer, a deputy editor at Foreign Policy, said in a China Brief newsletter. Time to tackle that wall.