China is known to belong to a group of countries with a very advanced level of comparative debt. Moreover, this level tends to grow continuously.
According to the Bank of global Settlements (BIS), the debt of the non-financial sector of the Chinese economy at the end of 2018 amounted to 257.2% of GDP. At the end of the 3rd 4th of 2022 the value of this indicator had already risen to 295.9%. At the end of the 3rd 4th of 2023, this debt reached 310.7% of GDP. By all standards, this is simply a very advanced level of debt.
For comparison, I will study the level of debt of the non-financial sector at the end of the 3rd 4th of 2023 for a number of another countries (% of GDP): USA – 253,3; United Kingdom – 231,6; Germany – 182,8; Switzerland – 298,9. Japan has a higher comparative debt level than China (399.8%); Singapore (342.3%); France (318.5%). By the way, in Russia this percent was 123.8%.
In terms of the absolute value of the debt of the non-financial sector of the economy of the Blue Empire inactive ranks second after the United States, nevertheless the difference is rapidly decreasing. In China, according to BIS estimates, the debt was at the end of the 3rd 4th of 2023 at $39.19 trillion, and in the United States at $40.87 trillion.
The debt of the non-financial sector of the economy consists of 2 components: 1) household debt; 2) non-financial enterprise debt. The first component is long individuals and citizens. The second component is the debt of enterprises in all sectors of the economy but finance. The first component of Chinese debt, both comparative and absolute, looks reasonably average against another countries. But in terms of the debt of non-financial corporations, China is "overtaking the rest". At the end of the 3rd 4th of 2023, the comparative level of this debt in China was 167.1% of GDP. But here are the values of this indicator for another countries (% of GDP): Japan – 115,0; USA – 78.4; United Kingdom – 64.3; Germany – 70.8; France – 151,4; Russian Federation – 79,3.
In terms of absolute amount of non-financial corporate debt For many years, China has taken the first place in the world. At the end of the 3rd 4th of 2023, the Celestial Empire amount was $28.53 trillion. For the United States, which ranks second, it was $21.16 trillion.
To complete the image, I will besides supply BIS data on public debt. In terms of the comparative level of this debt, China is far from a leader. The leader here is Japan with 220.8% of GDP. The level of public debt in relation to GDP in the United States is estimated to be 112.2%. And in China, this number was 81.2%. However, in terms of the absolute value of public debt, the Blue Empire is ranked second after the United States and Japan ranked third.
If we sum up China's private and public debt, the full debt of the Blue Empire at the end of the 3rd 4th was 391.9% of GDP and in the United States full debt was 365.4% of GDP. However, both countries are importantly behind Japan, with a full debt of 620.6% of GDP. The evidence holder in terms of this indicator is the Land of the Rising Sun.
But now I'm talking about China and their debt. I gave above the data on Chinese debt of the Bank of global Settlements. akin data can besides be found in the global Monetary Fund and planet Bank databases. On the another hand, the databases of global financial organisations are based on the authoritative data of associate States. However, all experts are well aware that the authoritative debt figures of China are grossly understated. Therefore, the above BIS data on Chinese debt should besides be considered incomplete (or understated).
Chinese experts are well aware that a crucial part of Chinese debt is the effect of the alleged shadow banking strategy and this part is not reflected in authoritative data. These are loans and loans granted to natural and legal persons by various companies and non-bank organisations and not subject to bank supervision by the People's Bank of China and another financial supervisors. The debt created by shadow banking services is comparable in scale to the debt from the authoritative banking sector. These operations are besides referred to as ‘off-balance-sheet’ (because many organisations dealing with ‘shadow banking’ turn out to be subsidiaries and another banking-related structures through which banks carry out off-balance-sheet credit operations).
As an example, I will mention data published in early 2019 by Reuters. Agency experts calculated that loans of a full value of 4.64 trillion yuan were issued in January that year. Of these 3.23 trillion yuan are loans from authoritative banking organizations. In addition, a 1.41 trillion yuan were made available through a parallel banking system.
In China, classified banking (keeping in the shadow zone-PZ) is run by any kind of underground organisation. These may be insurance companies, pension and investment funds. They may even be non-financial companies, if for any reason they have a surplus of money. Even the Chinese government is incapable to tell precisely what is the size of "undisclosed banking". However, the Chinese authorities did not interfere in specified parallel lending activities as they helped remove the bottlenecks of the Chinese economy. At the same time, of course, there was a hazard that the borrowers would not be able to pay off, but even handle their debts. Consequently, there was a hazard of bankruptcy. Did Chinese economists know that? Of course I do. For any time, however, China has introduced an unspoken ban on discussing the serious problems of the national economy in the media. Any expert who publically reveals the bottlenecks of the Chinese economy and indicates possible risks is considered guilty of causing ‘financial instability’.
But last year "that's where it broke". In China, they were forced to start a public discussion on “undisclosed banking” due to the fact that the Heavenly Empire began to experience all its “charities”. In 2023 the general bankruptcy of companies straight or indirectly related to the real property sector began: construction, development, real estate.
An article by James Gorri The Writing’s On The large Wall For A China Crash was published on November 1, 2023. “ Unsold completed projects are being demolished. Work on unfinished projects is halted and fresh improvement plans are not started, even though developers have immense credit debts." The request for property in China has declined importantly over the past year. The situation is aggravated by the fact that property prices are falling. Construction, improvement and real property companies which are fortunate to sale their properties, receipts are not adequate to cover costs, primarily for servicing and debt repayment. Additionally, the scale of the sale of real property in the secondary marketplace increased sharply. “ Many wealthy Chinese are trying to sale their property in China as rapidly as possible, ” says ZeroHedge. They are desperate to draw money from China and invest abroad before property prices fall even more. They realize the trajectory of the Chinese economy and want to get out.” The article notes that the Chinese most frequently trade their properties in mainland China for properties in Japan: “Chinese investors are not only attracted to nipponese properties (although this is an crucial factor). Another attractive origin is that property ownership (or profitable business) in Japan can aid in obtaining a long-term or even permanent residence permit. This gives Chinese investors the chance to leave the country easy to avoid the impending fall, and to defend themselves from the iron hand of the KPCH.”
As can be seen from the above passages of the article, many anticipate that after the collapse of the real property marketplace a large-scale crisis of the full Chinese economy may occur.
Now the leaders of the Chinese parties and governments are looking for ways out of this situation. And they are taking certain steps, which should be called semi-measures, which can only hold the crisis. In particular, Chinese experts propose to usage a resource specified as expanding public debt. I have presented above the figures that show that while the comparative level of debt of non-financial companies in China is prohibitive, the level of public debt is inactive average (as in Western countries).
And so in the 4th fourth of last year, the Chinese central government issued an additional 1 trillion yuan (141 billion dollars) in government bonds to finance infrastructure spending. The funds collected will be transferred to local governments through transfer payments and the central government will presume work for the repayment of capital and interest. Additional loans in the form of bonds approved by the OZPL (National Assembly of People's Representatives -PZ) increased the state budget deficit to 3.8% of GDP. Incidentally, this is simply a evidence budget deficit in Chinese history. The background of the OZPL decision on the additional debt was that local authorities, which until late bear the main burden of government loans, exhausted all their capabilities. Many of them are in condition before default. And any no longer repay their debt. And local governments utilized ‘unofficial banking’ services and their liabilities for ‘unofficial’ loans were not included in authoritative government debt statistics.
The current investigations in China, in addition to "unofficial banking", have revealed another "unofficial" origin of financing for private companies and local authorities – stock exchanges. Earlier in the media, there was barely any mention of him. Recently, an article entitled “China closes stock exchanges due to financial insolvent” was published on the website “The Epoch Times”. The author cites Caixin media group based in Beijing, known for investigative journalism in the business sector.
It is widely accepted that the Chinese stock marketplace consists of the 3 largest stock exchanges: Shanghai Stock Exchange (SEZ), Shenzhen Stock Exchange (SZSE) and Hong Kong Stock Exchange (HKEK). However, as it turns out, there is inactive a large number of local exchange platforms called "gray", "unofficial", "pseudofinance". They are besides not subject to supervision and control by central regulatory authorities. They besides aid organize borrowing locally by placing debt securities. According to Caixin's report, the first grey centers were established in Tianjin and Beijing in 2010. The number of specified institutions has risen rapidly, reaching 80 today. It is worth noting that many grey stock exchanges were initiated by state-owned companies and became, as Caixin points out, "popular trading platforms for non-standard financial assets specified as financial assets in difficulty, private bonds, special-purpose financing plans and receivables" and served as "important financing channels for debt conglomerates specified as China Evergrande Group, Zhongzhi Enterprise Group and next day Holding".
Such "grey" stock exchanges became so to speak, "the lenders of the last instance" – companies and local authorities turned to their services erstwhile they could not get money from another sources, even those companies and organisations dealing with "unofficial banking". Not only did most of the customers of these grey stock exchanges find themselves in a state before bankruptcy or bankruptcy, but even the stock exchanges themselves went bankrupt. Financial Supervisory Authorities in Hunan, Liaoning, Xi’an and Chongqing provinces announced on 25 March the closure of local financial asset exchanges, calling them “ pseudo-financial debt” which pose a hazard to the financial market. As noted in Mary Hong's article, investigations into the activities of grey stock exchanges and their closures are just beginning. In the close future, this subject can become the main subject of Chinese and abroad media.
Written by Valentin Katasonov
SOURCE
https://www.fondsk.ru/news/2024/04/16/o-dolge-kitaya-i-ego-tenevykh-birzhakh.html
(PL)
