The international rating Agency S&P on Thursday lowered the sovereign rating of China, referring to the sharp rise in debt in the second economy in the world.
A rating reflecting the creditworthiness of the Chinese government as the borrower in foreign currency was lowered from “A+” to “AA-“. A negative rating action on China was for the S&P first in the last 18 years.
“For a long period of growth of debt in China increases economic and financial risks”, – said in a release from the Agency: total debt in the economy – including corporate loans, debts of natural persons and the public debt is growing significantly faster than the economy.
According to the IMF, the total debt of China for 9 years grew from 146% of GDP to 300%, almost twice the average in developing countries (175% of GDP). While each yuan of new loans, the economy produces only 0.625 yuan of new GDP.
“Any large country so after a sharp increase in debt experienced either a financial crisis or a prolonged slowdown in economic growth,” said a senior investment strategist at Goldman Sachs Ha Jimin.
“The most striking example is Japan after the 1990s. The country had too much debt, mostly domestic, as a result of economic growth collapsed” – I agree Professor, University of Beijing Michael Pettis.
The problem is that the accumulated debt has to be serviced by paying interest, and this “eats up” the income of consumers and corporate profits. According to Sberbank CIB, it already costs China 10% of GDP annually.
Every fourth company of China, listed on the stock exchange, operates on the principle of a financial pyramid, servicing the debt by raising new debt, because it generates enough cash flow to interest payments, the study showed Reuters.
In the result, the banking system of China, which lends to the Chinese economic miracle, turns into a ticking time bomb, warns former Fitch analyst, now working in Autonomous Research Asia Charlene Chu. According to her, official statistics of China masks the true problems in the banking system: with the official delay of 1.75%, in fact 22% of all issued in China credit is already problematic.
Credit infusion have become the main engine of the Chinese economic miracle in the last 9 years, says a Professor at the University of California ‘s Victor Shih. According to his forecast, by the end of the year the total debt of China will exceed 330% of GDP.
The Chinese leadership is caught between a rock and a hard place, experts explain Center for macroeconomic research of Sberbank of Russia: on the one hand, the Communist party realizes the necessity of taming the debt dragon; on the other termination of the credit recharge facing bankruptcy and economic slowdown.
The majority of the company-a zombie is a state-owned, their total debt reached $ 11 trillion, says chief economist at Alfa Bank Natalia Orlova. This is mainly the industrial sector (coal mining, metallurgy, aluminum and glass factories), where 35% of all enterprises are unprofitable.
The PRC government has developed a plan to reduce overcapacity in the economy by 10%, but it will mean the loss of 4.3 million jobs and 24-73 billion dollars in additional costs for the budget, and moreover, fraught with social unrest.
In the long-term growth in China will inevitably slow down – with a current of 6.5-7% to 3% a year, predicts CYI Sberbank.
Since China is the world’s largest consumer of commodities, its slowdown, whether it be hard landing or soft is one of the major threats to the long-term prospects of the Russian economy, warned the Report on monetary policy of the Central Bank of the Russian Federation.
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M. P. For clinical politicians Hydepark – I posted this article for the extension of knowledge, and not with some other goal. That would show that:
– China is not a socialist economy, and the same Taiwanese variant of dictatorial capitalism. Just PDA – collective dictator
– call it what he likes, and we have to work according to the laws of capitalism. And here the collective Chinese dictator there is a problem. Partly from lack of experience. Partly natural capitalism
– China, like Russia, there is a huge problem of the debt of regional governments (branches dictatorial capitalism). But this duty is included in total debt only as balance. Here it is said that the Chinese company is easy in the West and it began to bear the risks. All as in Russia, only in Russia in 2014, corporate debt is reduced. And not at the request of borrowers, but because the aggressor is reluctant to lend
– is China the problem of regulation of the stock market. But she seems to be a problem then .
It seems to me that the Chinese collective dictator will take their problems. And everyone will be able to convince him to do it. Because if the Chinese economy sneezes, the rest immediately run to the pharmacy for antigrippina
