FacebookTwitterGoogle+RedditEmail

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:

Weekend Edition
November 16, 2018
Friday - Sunday
Jonah Raskin
A California Jew in a Time of Anti-Semitism
Andrew Levine
Whither the Melting Pot?
Joshua Frank
Climate Change and Wildfires: The New Western Travesty
Nick Pemberton
The Revolution’s Here, Please Excuse Me While I Laugh
T.J. Coles
Israel Cannot Use Violent Self-Defense While Occupying Gaza
Rob Urie
Nuclear Weapons are a Nightmare Made in America
Paul Street
Barack von Obamenburg, Herr Donald, and Big Capitalist Hypocrisy: On How Fascism Happens
Jeffrey St. Clair
Roaming Charges: Fire is Sweeping Our Very Streets Today
Aidan O'Brien
Ireland’s New President, Other European Fools and the Abyss 
Pete Dolack
“Winners” in Amazon Sweepstakes Sure to be the Losers
Richard Eskow
Amazon, Go Home! Billions for Working People, But Not One Cent For Tribute
Ramzy Baroud
In Breach of Human Rights, Netanyahu Supports the Death Penalty against Palestinians
Brian Terrell
Ending the War in Yemen- Congressional Resolution is Not Enough!
John Laforge
Woolsey Fire Burns Toxic Santa Susana Reactor Site
Ralph Nader
The War Over Words: Republicans Easily Defeat the Democrats
M. G. Piety
Reading Plato in the Time of the Oligarchs
Rafael Correa
Ecuador’s Soft Coup and Political Persecution
Brian Cloughley
Aid Projects Can Work, But Not “Head-Smacking Stupid Ones”
David Swanson
A Tale of Two Marines
Robert Fantina
Democrats and the Mid-Term Elections
Joseph Flatley
The Fascist Creep: How Conspiracy Theories and an Unhinged President Created an Anti-Semitic Terrorist
Joseph Natoli
Twitter: Fast Track to the Id
William Hawes
Baselines for Activism: Brecht’s Stance, the New Science, and Planting Seeds
Bob Wing
Toward Racial Justice and a Third Reconstruction
Ron Jacobs
Hunter S. Thompson: Chronicling the Republic’s Fall
Oscar Gonzalez
Stan Lee and a Barrio Kid
Jack Rasmus
Election 2018 and the Unraveling of America
Sam Pizzigati
The Democrats Won Big, But Will They Go Bold?
Yves Engler
Canada and Saudi Arabia: Friends or Enemies?
Cesar Chelala
Can El Paso be a Model for Healing?
Mike Ferner
The Tragically Misnamed Paris Peace Conference
Barry Lando
Trump’s Enablers: Appalling Parallels
Ariel Dorfman
The Boy Who Taught Me About War and Peace
Binoy Kampmark
The Disgruntled Former Prime Minister
Faisal Khan
Is Dubai Really a Destination of Choice?
Arnold August
The Importance of Néstor García Iturbe, Cuban Intellectual
James Munson
An Indecisive War To End All Wars, I Mean the Midterm Elections
Nyla Ali Khan
Women as Repositories of Communal Values and Cultural Traditions
Dan Bacher
Judge Orders Moratorium on Offshore Fracking in Federal Waters off California
Christopher Brauchli
When Depravity Wins
Robby Sherwin
Here’s an Idea
Susan Block
Cucks, Cuckolding and Campaign Management
Louis Proyect
The Mafia and the Class Struggle (Part Two)
David Yearsley
Smoke on the Water: Jazz in San Francisco
Elliot Sperber
All of Those Bezos
FacebookTwitterGoogle+RedditEmail