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E
Registered Member

Date Joined Sep 2008
Total Posts : 5

Posted 2/13/2010 8:34 AM (GMT +8)

I was hoping someone would have the most recent China debt ratios—i.e., government and private debt as a % of GDP. I want to see how vastly unlevered China is vs. developed world.
Thanks,

Rob Hawcroft
Registered Member

Date Joined Jul 2008
Total Posts : 280

Posted 2/18/2010 5:21 PM (GMT +8)

so where did all the bank loans go last year, they were worth 1/3rd of GDP alone?

Arthur Kroeber
Registered Member

Date Joined Aug 2007
Total Posts : 51

Posted 2/18/2010 10:47 PM (GMT +8)

Officially China's sovereign debt is about 17% of GDP.
The true figure is probably quite a bit higher because of unregistered liabilities of local governments. The highest private estimate would put total government liabilities at around 50% of GDP.
It is worth noting that almost all of this figure is in RMB and is held by domestic counterparties. the government's foreign debt is virtually non-existent, maybe 1-2% of GDP.

Consumer debt is on the order of 15% of GDP and it is almost entirely mortgages on very conservative terms (maximum 80% LTV).

Corporate debt ratio is hard to determine because the gross lending figures of banks include a lot of lending to local governments. At a guess I would say 45-50% of GDP.

Joyce Poon
Registered Member

Date Joined Sep 2007
Total Posts : 16

Posted 2/18/2010 10:47 PM (GMT +8)

On the surface, China kept a remarkable government debt ratio at lower than 20%. However this number does not include local debt. According to the attached offering circular issued by the Chinese government for the issuance of treasuries in HK, the overall public debt ratio was around 42% in 2008. However there are many analyses out there estimating a higher debt ratio of 50%. Taking into account of bank loans, overall debt ratio in China stood at ~150% in 2008.
Unlike the US, China’s debt ratio stayed flat from 2006 to 2008; however it caught up pretty quickly in 2009, reaching 175% of GDP, due to the explosion of bank credits. As we see it, some of the money has probably gone to the local governments which need financing desperately for the stimulus projects. Hence the debt ratio in 2009 is likely to be significantly overstated, though we cannot quantify the exact amount.

China’s debt ratio remains relatively low compared to the US’s, which stood at 353% in 2008. However this level of the US overall debt level is also believed to be overstated. While we know that there are double counting in the amount of debt, especially in the financial sector, we have yet to come up with a reliable method to quantify the overlapping amount.
An alternative measure is the US’s non-financial debt ratio which is almost 60% higher than China’s in 2008.

Arthur Kroeber
Registered Member

Date Joined Aug 2007
Total Posts : 51

Posted 2/18/2010 10:48 PM (GMT +8)

PLEASE BE CAREFUL ABOUT DOUBLE COUNTING!!!!

Total loans by banks include most of the debt outstanding by local governments. Therefore you cannot simply add estimates of local debt to total credit outstanding from banks.

Joyce Poon
Registered Member

Date Joined Sep 2007
Total Posts : 16

Posted 2/18/2010 10:48 PM (GMT +8)

Yes we are aware of that and the US number has the same (actually more complicated) problem as well
Do you have any good method as to how to estimate the double-counting amount?

I notice that for stated owned commercial banks (i.e. holding 60% of assets in banking sectors) reported to hold 1.7trillions “claims to government”. Can this number be a basis to estimate the over-stating amount? For example, the overstated amount = 1.7 trillion / 0.6 = 9% of GDP in 2008?

Arthur Kroeber
Registered Member

Date Joined Aug 2007
Total Posts : 51

Posted 2/19/2010 8:29 PM (GMT +8)

The bank loans went mainly to local govts and state enterprises.
I don't want to minimize the scale of the problem, there are serious issues. But basically the stock of debt in China consists of:
a) bank lending. Total loans outstanding at the end of of 2009 were 119% of GDP
b) Explicit central government borrowing - about 17% of GDP
c) External private borrowing - don't have a good number on this but the figure would be far far lower than the domestic credit number
d) Stock of corporate bonds outstanding - probably in the neighborhood of 6-7% of GDP.

Altogether we are looking probably at around 150% of GDP. The issues to bear in mind with this analysis are
a) Calculations that add up local government borrowing plus bank credit are double counting, since almost all local borrowing is from banks - so if you add the two you are counting the liability and asset side together.
b) the total stock of debt is meaningful only when put against the total stock of assets which generate the cash flow to service both the ongoing cost of the debt and the likely future defaults. It is much easier to quantify the debts than the assets and I believe that foreign analysts have a tendency systematically to underestimate the assets and potential cash flows, hence overstate the risks to China of its debt burden
c) Related to the latter point I would note that China now runs a current account surplus of around 6% of GDP, and net government saving in recent years (pre the 09 blowout) was running at 5-10% of GDP. When both the external balance and the domestic fiscal balance are in such strong shape the risks of high debt are less than they would be if you were running a c/a deficit and the government was not a net saver.

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