Is China actually bankrupt?

http://articles.moneycentral.msn.com/Investing/JubaksJournal/is-china-actually-bankrupt.aspx?page=all

by known • 16 years ago

46 24 16 years ago

articles.moneycentral.msn.com

swombat• 16 years ago

Would love to hear some analysis of this by people who actually know a thing or two about economics. Is it more of the usual baloney?

weego2• 16 years ago

The basic outcome of that article is that any country is bankrupt on paper if you apply the right criteria and filter them through some historical information super-imposed onto what may or may not be happening now.

The fact they picked China gives it a high propaganda rating in my eyes.

berntb2• 16 years ago

I would have felt calmer if that assuring voice wasn't the third comment from a month old account. :-)

Anyone really know?

mark_l_watson2• 16 years ago

weego: excellent point! The countries with the worse problems (at least that will also badly effect the rest the world) are the UK and the USA. In making predictions we should be informed by chaos theory: things are basically unpredictable because small events can have such large unexpected consequences. That said, I expect the UK to pop sometime in the next several years and then my country to pop sometime after that.

bokonist2• 16 years ago

Debt is only ever a problem for a country if a) it is trying to maintain a fixed exchange rate or b) the debt is denominated in gold or a foreign currency. Neither of these is true for China, so it's level of debt is not a problem. In fact, under a fiat currency system the entire concept of "debt" is a misnomer for sovereigns. Sovereign debt is must better thought of as interest bearing currency.

dmm• 16 years ago

> a) it is trying to maintain a fixed exchange rate

I thought China is trying to maintain an exchange rate (or rate "band") with the USD.

Nwallins2• 16 years ago

> Debt is only ever a problem for a country ...

What about interest payments? What about the risk of having the debt called in, or the risk of using up all of one's credit?

Teese2• 16 years ago

Something is odd with this web page. At least using chrome on Win7 x64.

I have VS2008 and SQLProfiler, even the Windows Task manager open in the background and they all have parts flickering every ~4 seconds when this page is opened in chrome.

For example in Visual studio the Solution Explorer is refreshing every four seconds.

anybody have any ideas? it's kind of unnerving. Or maybe it's just me.

romland• 16 years ago

I just tried it with a few configurations. And I can conclude that it's not just you.

With Chrome and VS2008 with a project open I at least get the Solution Explorer refreshes you described. I don't have time to investigate further right now but my first reaction was that it was a bit scary that a webpage would be able to influence a separate application like that... But a more likely scenario is that VS has hooked up a debugger to the thread and it triggers this behavior.

I don't have any experience with .NET on the web, so I can't say for sure. But I am for sure going to bookmark this and have a look at it later.

Thanks! :)

Teese2• 16 years ago

except it's not just VS, Outlook had certain elements flicker too.

If you go to the chrome options page, and look at the under the hood tab, that whole scroll region flickers too.

Chrome's task manager shows that silverlight is loaded somewhere on that page. maybe that is it.

poutine• 16 years ago

Safari/OSX it would bring the browser to the foreground every couple of seconds. Even if Safari was hidden. Very irritating.

karl11• 16 years ago

One reason I'm skeptical about this is the the United States has a ton of debt (this is a definite fact), and someone had to lend us the money. China has over $1T of U.S. Treasury Bonds. It might be plausible that they have cash flow problems, since they can't exactly liquidate $1T of U.S. Bonds, but then why do they keep buying them? In any case, I don't buy this one bit, especially since I haven't heard a single reputable economist ever say anything like it.

jbooth• 16 years ago

They have to keep buying them -- their economy is based on keeping the yuan artificially cheap compared to the dollar. In order to maintain this out-of-balance price, they have to keep buying dollars with yuan, taking dollars out of the market and increasing the supply of yuan.

FLX• 16 years ago

Is this US actually bankrupt?

olefoo• 16 years ago

To speak of bankruptcy when talking about sovereign governments is somewhat misleading since they have many options that are simply unavailable to even the largest of private debtors.

Articles like this always strike as being not only fuzzy from an economic perspective, but also willfully blind to the political implications.

mark_l_watson2• 16 years ago

Interesting - I am not sure if I buy into this, but an interesting article.

In the USA, we stopped publishing our M3 figures 7 or 8 years ago -- a stunning lack of transparency, but as the article says, all governments lie about their finances.

tjic• 16 years ago

Much as I dislike it, the fact is that any government can raise taxes (until they hit the point on the Laffer Curve where higher rates == lower revenue ... and it's far from clear that China is at that point).

Thus, China's "bankrupcy" is nonsense as long as the government is willing to up taxes.

Also, just as you have to evaluate the P/E ratio of a company in the light of its growth rate, you have to evaluate the debt of any entity in terms of its growth rate.

E.g.: would I be happy to loan $100k to someone earning $25k/yr ?

No.

...but what if I knew for a fact that the person's income was going to double every year for the next 10 years?

Well, that's a different story: in 10 years, the person's income will be $25 mill/year, and the debt will be trivially easy to repay.

China has had a 10% GDP growth rate for a decade now. That means that every decade their GDP is 2.5x higher than before.

A "high" debt load (measured in % of current GDP) seems a lot less worrying in that context.

To really nail the issue down, you need to figure out if they're going to keep up that growth rate, and China won't grow at that rate forever ... but another 10 or 20 years sounds like a safe bet.

jerf• 16 years ago

Is there anyone who isn't?

We're going to be explaining to school children how every sovereign entity in the world can be in crippling debt simultaneously for centuries. Here's hoping those next societies actually learn something from this. With a bit of luck and a whole lot of making hard choices, perhaps ours will be one of them.

Estragon• 16 years ago

Bankruptcy is a legal concept which cannot be applied to a sovereign entity. All you can really talk about is credibility to potential lenders. I would say China's credibility is pretty damn good at the moment.

Is China actually bankrupt?

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