1/6
Nicholas Borst has just published a useful paper on Chinese debt with lots of good data. Among other things he says that Chinese debt is 75 percent greater than the outstanding stock of debt of all other emerging markets combined.
@NBorstSF
prcleader.org
Nicholas Borst has just published a useful paper on Chinese debt with lots of good data. Among other things he says that Chinese debt is 75 percent greater than the outstanding stock of debt of all other emerging markets combined.
@NBorstSF
prcleader.org
2/6
He argues that China has three options in dealing with the debt: it can use the central governmentβs balance sheet to absorb the debt, it can redirect revenues to local governments, where much of the debt is held, or it can transfer state assets to repay the debt.
He argues that China has three options in dealing with the debt: it can use the central governmentβs balance sheet to absorb the debt, it can redirect revenues to local governments, where much of the debt is held, or it can transfer state assets to repay the debt.
3/6
In fact the first option doesn't really address the debt so much as convert it from an implicit obligation of the central government to an explicit one, where it can't be serviced out of existing revenues, while the second option is effectively a variation of the first.
In fact the first option doesn't really address the debt so much as convert it from an implicit obligation of the central government to an explicit one, where it can't be serviced out of existing revenues, while the second option is effectively a variation of the first.
4/6
Either option risks creating a Japanese-style slowdown as the enormous debt burden imposes a wide range of financial distress costs upon the economy. I think these financial distress costs are the least well-understood part of a macro debt burden.
carnegieendowment.org
Either option risks creating a Japanese-style slowdown as the enormous debt burden imposes a wide range of financial distress costs upon the economy. I think these financial distress costs are the least well-understood part of a macro debt burden.
carnegieendowment.org
5/6
In the end the only way to "resolve" a bad debt problem is to assign the balance-sheet costs to some sector or other of the economy, and the most efficient way by far is his third option, for local governments to use state-owned assets to absorb the cost.
In the end the only way to "resolve" a bad debt problem is to assign the balance-sheet costs to some sector or other of the economy, and the most efficient way by far is his third option, for local governments to use state-owned assets to absorb the cost.
6/6
The problem here, as Borst notes, is that this is a "politically charged endeavor", to say the least, but the only likely outcomes are either a rapid adjustment (i.e. a financial crisis, which is still pretty unlikely) or a slow, Japanese-style adjustment.
The problem here, as Borst notes, is that this is a "politically charged endeavor", to say the least, but the only likely outcomes are either a rapid adjustment (i.e. a financial crisis, which is still pretty unlikely) or a slow, Japanese-style adjustment.
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