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December 28, 2019 | Bills Now Due on Vacant Useless Chinese Properties

Mike 'Mish' Shedlock

Mike Shedlock / Mish is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction.
After years of malinvestment, the bills are now coming due in China.

With more than $6 trillion worth of debt, Chinese SOEs and cities find it increasingly difficult to meet payment deadlines.

Malinvestments aside, the Bills Come Due for China’s Local Governments.

For decades, local governments in China borrowed heavily to build urban infrastructure, helping to fuel the country’s red-hot economic growth. Now, they are under pressure to pay the bill, adding another financial worry to Chinese policy makers’ list.

Independent economists estimate that China’s municipalities have racked up more than $6 trillion in debt—including debts authorities don’t acknowledge on their books. Tax revenue and returns on the roads and other infrastructure built with borrowed money aren’t enough to pay down the debts. Land sales, which local governments have relied on, have weakened as the economy slows.

With nearly 3 trillion yuan ($428 billion) in bonds coming due in the next two years, on top of bank loans and hidden debt, local governments need to find ways to refinance.

Meanwhile, it has become nearly impossible for local governments to tap riskier lending channels. Beijing’s efforts to rein in overall debt has meant new restrictions on informal lending. “Previously, local governments could just keep on rolling over debt, but now they can’t do that,” said Allen Feng, a China analyst for consulting firm Rhodium Group in Singapore.

China, like Japan in the 1990s, Will Be Dominated by Huge Zombie Banks

None of the above is in the least surprising.

As noted on November 18, China, like Japan in the 1990s, Will Be Dominated by Huge Zombie Banks

On November 22, I commented Key Thought of the Day: China Today is Like Japan in 1989.

But it’s not just China.

$250 Trillion in Global Debt

Questions abound.

For example, I wonder about the $250 Trillion in Global Debt: How Can That Be Paid Back?

If you don’t believe it can be paid back, then I am with you.

My answer is to buy gold. What’s yours?

For discussion, please consider How Does Gold React to Interest Rate Policy?

Mike “Mish” Shedlock

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December 28th, 2019

Posted In: Mish Talk

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