The President of China Xi Jinping’s senseless economic policies are pushing the Communist nation into economies woes. And from a Nikkei Asia report, it seems that the country has slipped into a major debt crisis.
All major indicators seem to suggest that debt growth in China is outpacing economic growth. The Chinese government is itself worried about its rising bad debt situation and is trying to inculcate a sense of discipline in the Communist nation’s corporate debt market. The Xi Jinping administration is also encouraging foreign investors to help China ease the bad debt situation in the country.
China’s debt situation has been awful. Since the global financial crisis, its debt has been increasing by 20 per cent per year. China’s GDP growth has however been overshadowed by the inflating debt. As per the Bank for International Settlements, China’s debt-to-GDP ratio stood at 178 per cent in the first quarter of 2010. But in the first quarter of 2020, the same reached 275 per cent.
Attention is shifting to loan defaults by three Chinese State-owned Enterprises — miner Yongcheng Coal and Electricity Holding Group, Huachen Automotive Group Holdings and a chipmaker backed by Tsinghua University.
However, another issue is the Local Government Financing Vehicles (LGFVs) set up by provincial and local governments in China to circumvent Xi Jinping administration’s ban on direct borrowing from banks. LGFV loans have were swapped into municipal bonds. And now, these borrowings constitute 10 per cent of China’s GDP. A quarter of these loans will fall due in 2021, which can push China’s debt crisis even further.
China’s debt situation is now worsening as emergency spending by Beijing during the Coronavirus Pandemic has accelerated debt growth. China’s government and local authorities are struggling to manage the growing number of debt defaults.
Take the example of China’s Henan Province. The provincial government has lined up a State-owned company to help tackle a series of bond defaults by Yongcheng Coal and Electricity Holding Group that have ignited worries about local government debt in the country. Henan Transport, a holding company for toll roads and infrastructure assets, is planning to buy a 9.5% stake in Yongcheng Coal and Electricity to rescue the struggling coal miner.
The State-owned Yongcheng Coal and Electricity has missed redeeming three other 1 billion Yuan notes. And now the Henan province is clearly trying to somehow salvage the debt-hit company.
Now, China’s President Xi Jinping wants to boost productivity in the Communist economy and ensure sustainable growth. But the bad debt situation can ruin Xi Jinping’s ambitions. The rising bad debt situation can spill over into China’s State-owned banking system. In such a case, China’s economic growth would get irreversibly derailed.
The biggest problem for Xi Jinping is that if debt crisis goes too deep into the Chinese economy, then China’s Central Bank, as well as the Central government, would have to shoulder the heavy burden of China’s increasing debt burden. However, it remains to be seen if Xi is ready to bear the burden of China’s rising bad debts.
China is officially bankrupt now. And the Chinese economy will soon be facing a situation of complete breakdown as the Xi Jinping administration remains clueless about how to manage the huge debt crisis facing it.