by Mish Shedlock, Mish Talk:
Other than exports, no country wants to be like China.
China Overindebtedness, Overbuilding and Overcapacity
The Wall Street Journal reports China’s Economy Is Burdened by Years of Excess. Here’s How Bad It Really Is.
Destiny deferred
China’s rapid growth meant that for years forecasters expected China to overtake the U.S. as the world’s largest economy. As recently as 2019, some forecasters were expecting China’s GDP to eclipse the U.S.’s around 2030. Today, it is the U.S. powering the global economy and China that is battling stumbling growth. Few now expect China to catch up with the U.S. before midcentury, if it manages to at all.
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Ticking time bomb
China is also facing demographic headwinds that will make it harder to restore its economic vigor. China’s working-age population is shrinking, reversing the demographic dividend that powered its economic ascent.
China’s Working-Age Population
China’s economy has for decades been powered by heady levels of investment. At first, that yielded modern infrastructure and propelled the expansion of China’s manufacturing engine and its megacities. But sticking with that strategy year after year has meant China today is beset by colossal debts, unneeded apartments and industrial overcapacity.
Debt as Percentage of GDP China
Debt: Borrowing by government, households and corporations in China is approaching 300% of its annual GDP. “Hidden” borrowing by local governments—debt held off the books on their behalf by opaque investment companies known as local government financing vehicles—is a major problem. On some measures, the scale of those debts and the burden of servicing them in China is more severe than in the U.S. before the financial crisis or in Europe in the depths of its own debt crisis a decade ago.
Real estate: China’s real-estate boom was unprecedented—and so is the ongoing bust. New construction and sales have cratered since the government took steps to rein in the bubble in 2020. It has struggled to stabilize the market, despite measures to ease purchase restrictions and offer cheap credit to would-be buyers.
One sign of the boom’s excesses: There are as many as around 80 million vacant units in China, according to the latest estimates at the end of November, equivalent to half the total housing stock of the entire U.S.
Share of Global Manufacturing
Industrial Overcapacity
In response to the slowing economy, and to transform China into a technological colossus, leader Xi Jinping has been funneling investment into China’s already huge factory sector. The result has been a surge in industrial capacity and two years of falling prices for Chinese producers, which are increasingly looking overseas to find buyers for goods they can’t sell at home. That is sparking trade spats with the U.S.-led West and emerging markets such as Brazil and India.
Debt Deflation Trap
China is in a debt deflation trap of its own making.
It makes sense to add capacity if the debt is productive and can be serviced.
China should write down debts but much of that is in State Owned Enterprises (SOE), and the political class will not take a hit or admit mistakes (just like everywhere else).
