FacebookTwitterRedditEmail

Are Chinese Municipal $6 Trillion (40 Trillion Yuan) Hidden Debts Posing Titanic Risks?

The China Collapse trope is rearing its ugly head again. This time round, the spin is on China’s local government or municipal debts.

The latest narrative goes like this : local governments in China are estimated to have hidden debts of 40 trillion Yuan (or $6 trillion). Those hidden or undisclosed debts, together with outstanding municipal bonds and the Central government debts, “could have reached an alarming level of 60%”. The 60% debt to GDP ratio is hardwired in the Maastricht Treaty with a view to instilling fiscal and financial disciplines among the 28 member states of the European Union or EU 28 for short. The S&P report describes China’s hidden municipal debts as “a debt iceberg with titanic credit risks”!

Now, let’s unpack the opinion in the S&P report.

Estimates of China’s hidden municipal debts range from 8.9 trillion Yuan by Bank for International Settlements and 19.1 trillion Yuan by IMF to 23.6 trillion Yuan by Chinese Academy of Social Sciences and 47 trillion Yuan by Tsinghua University Taxation and Finance Research Institute. There are 8 different estimates by 8 different institutions, with the median value of 30 trillion Yuan. S&P didn’t explain or justify its choice of 40 trillion Yuan, which is close to the top outlier of 47 trillion Yuan.

Based on the median value of 30 trillion Yuan in undisclosed municipal debts, the total Central government (13 trillion Yuan) and municipal debts (including the disclosed portion of 16 trillion Yuan) stood at 60 trillion Yuan (about $9 trillion) at end 2017. That works out to 73 % of China’s nominal GDP of 83 trillion Yuan ($12.4 trillion) in 2017.

The 60% debt to GDP prescription in Maastricht Treaty is more honored in the breach. The average debt to GDP ratio of EU 28 by end 2017 is 81.6%. Even the EU discipline master Germany’s 64% exceeds the 60% limit! The financial situation in a handful of EU states is precarious, even parlous. Their debt to GDP ratio is not just alarming, but downright frightening :

Greece      180 %

Italy            131%

Portugal   128%

Belgium    104%

France         99%

Spain            97%

China’s total public debts including those of municipalities are nowhere near distress levels, nor excessive by international standards. Several advanced economies have way higher debt to GDP ratio, in addition to the 6 EU states above :

Japan   224%

US         102% (111% including     municipal debts)

Canada 98%

UK          90%

Unlike most other countries, China has ample assets and funds in the public coffers. Apart from $3.1 trillion in foreign reserves (the most in the world, making it the biggest creditor nation), state-owned enterprises have net worth of another $3 trillion, $2 trillion of which is in the form of SOE shares listed on stock exchanges.

Most of the Chinese municipal debts were incurred to build public amenities and infrastructures to attract and support local and foreign investments. Such productive use of debts will yield a return over time in the form of taxes paid by businesses out of their profits. By comparison, most of the debts of developed countries and their municipalities go towards operating expenditures.

The risk of default by Chinese municipalities on their debts, disclosed and undisclosed, is remote. Most of the loans are from state-owned banks. It’s all in the family.

More articles by:

bernie-the-sandernistas-cover-344x550

April 25, 2019
Jesse Jackson
Trump Plunges the US Deeper Into Forgotten Wars
George Wuerthner
BLM Grazing Decision Will Damage the Owyhee Canyonlands Wilderness
April 24, 2019
Susan Babbitt
Disdain and Dignity: An Old (Anti-Imperialist) Story
Adam Jonas Horowitz
Letter to the Emperor
Lawrence Davidson
A Decisive Struggle For Our Future
John Steppling
The Mandate for Israel: Keep the Arabs Down
Victor Grossman
Many Feet
Cira Pascual Marquina
The Commune is the Supreme Expression of Participatory Democracy: a Conversation with Anacaona Marin of El Panal Commune
Binoy Kampmark
Failed States and Militias: General Khalifa Haftar Moves on Tripoli
Dean Baker
Payments to Hospitals Aren’t Going to Hospital Buildings
Alvaro Huerta
Top Ten List in Defense of MEChA
Colin Todhunter
As the 2019 Indian General Election Takes Place, Are the Nation’s Farmers Being Dealt a Knock-Out Blow?
Charlie Gers
Trump’s Transgender Troops Ban is un-American and Inhumane
Barbara Nimri Aziz
Just Another Spring in Progress?
Thomas Knapp
On Obstruction, the Mueller Report is Clintonesque
Elliot Sperber
Every Truck’s a Garbage Truck
April 23, 2019
Peter Bolton
The Monroe Doctrine is Back, and as the Latest US Attack on Cuba Shows, Its Purpose is to Serve the Neoliberal Order
David Schultz
The Mueller Report: Trump Too Inept to Obstruct Justice
Geoff Beckman
Crazy Uncle Joe and the Can’t We All Just Get Along Democrats
Medea Benjamin
Activists Protect DC Venezuelan Embassy from US-supported Coup
Patrick Cockburn
What Revolutionaries in the Middle East Have Learned Since the Arab Spring
Jim Goodman
Don’t Fall for the Hype of Free Trade Agreements
Lance Olsen
Climate and Forests: Land Managers Must Adapt, and Conservationists, Too
William Minter
The Coming Ebola Epidemic
Tony McKenna
Stephen King’s IT: a 2019 Retrospective
David Swanson
Pentagon Claims 1,100 High Schools Bar Recruiters; Peace Activists Offer $1,000 Award If Any Such School Can Be Found
Gary Olson
A Few Comments on the recent PBS Series: Reconstruction: America After the Civil War
April 22, 2019
Melvin Goodman
The NYTs Tries to Rehabilitate Bloody Gina Haspel
Robert Fisk
After ISIS, a Divided Iraq, Wounded and Grief-Stricken
Binoy Kampmark
Julian Assange as Neuroses
John Laforge
Chernobyl’s Deadly Effects Estimates Vary
Kenneth Surin
Mueller Time? Not for Now
Cesar Chelala
Yemen: The Triumph of Barbarism
Kerron Ó Luain
What the “White Irish Slaves” Meme Tells Us About Identity Politics
Andy Piascik
Grocery Store Workers Take on Billion Dollar Multinational
Seiji Yamada – Gregory G. Maskarinec
Health as a Human Right: No Migrants Need Apply
Howard Lisnoff
Loose Bullets and Loose Cannons
Ricardo Alarcón de Quesada
Dreaming in Miami
Graham Peebles
Consuming Stuff: The Polluting World of Fashion
Robert Dodge
Earth Day: Our Planet in Peril
Weekend Edition
April 19, 2019
Friday - Sunday
Andrew Levine
What Will It Take For Trump to Get His Due?
Roy Eidelson
Is the American Psychological Association Addicted to Militarism and War?
Jeffrey St. Clair
Roaming Charges: Time is Blind, Man is Stupid
Joshua Frank
Top 20 Mueller Report “Findings”
Rob Urie
Why Russiagate Will Never Go Away
FacebookTwitterRedditEmail