title: california national guard members wont have to pay back bonuses
text: will china trigger the next global recession current debt level causes grave concern jing jin  misesorg   
  chinas debt growth rate has become the focus of some discussions and fair enough from comparing the outright levels it may seem that china can collapse at any moment 
  daniel fernandez suggested this in his article  has china reached its debt limit  in mises wire  in response to the governments monetary expansion stimulus plan after the  financial crisis chinas corporate sector did indeed leverage up quickly followed by an equally fast pace of leveraging in the household sector however in order to avoid comparing apples with oranges we need to take a closer look by putting these numbers into perspective using the same data source as used by fernandez we find that chinas total debt as a percentage of gdp was  percent by the end of  debttogdp ratio of corporate government and household sectors stood at  percent  percent and  percent respectively 
  for government and household sectors both started from considerably low levels until the last administration kicked in a fourtrillion yuan rmb stimulus plan in  government debttogdp ratio which was kept in the mid s in the first decade of this millennium now stood at  percent by the end of  households debttogdp ratio was at  percent in  and almost doubled to  percent in  and then doubled again to  percent by the end of  the leveraging up of households happened exactly as the chinese society was undergoing rapid urbanization as well as when the government launched its  stimulus 
  apart from the demand for urban housing chinese households with their high savings rate and extra cash in hands invested in in real estate as a hedge against future inflation furthermore as the stimulus package allowed for easier lending household debt increased dramatically however we must note that although the debt growth rate was high the absolute debt level of household is still considerably low versus global peers 
  the most disturbing trend is found in the corporate sector with the debttogdp ratio increased from approximately  percent prior to  to  percent by the end of  first of all the level of corporate debt mostly in the form of bank loans was high to start with but is by no means out of the norm for a financial system dominated by the banking sector whose funding source is mostly deposits two figures from jonathan andersons how to think about china series provide some insights  
  an international comparison of assets of banking system vs domestic saving rate 
  breakdown of assets of chinas financial system 
  this point can be further demonstrated by comparing financial asset structures for example between the us and china obviously bank loans are the dominant funding source of the corporate sector in china whereas in the us the role of bank loans is far from prominent in comparison with its enormous capital markets where the corporates can raise both equities and bond financing easily 
  financial asset structure us vs china  
  data source the world bank federal reserve bank shanghai stock exchange shenzhen stock exchange china central deposit and clearing co ltd ccdc sifma 
  it is therefore not surprising that the leveraging up as a response to governments stimulus plan manifested itself mostly in the credit extension through the banking system chinas flat yield curve 
  the large role of the banks can also be seen in chinas bond market yields and one manifestation of this is a flat yield curve  the reason for this is simple deposits when banks have more deposits to manage than they can lend out they invest these deposits into the bond market and usually on the long end to boost yields this investment strategy or assetliability management scheme bids up the bond prices on the long end hence pushing down the longterm yields 
  in addition between allocating deposits to these two types of assets bonds vs loans banks sometimes have incentives to invest in bonds rather than lending due to the balancing considerations of corporate demand credit risks market liquidity and yields that are also subject to interest rate controls that are at final stage of liberalization and the lending rate was completely liberalized only in early  so the yield spread at current stage reflects more of the combination of chinas financial structure and capital flows rather than being a good indicator of economic fundamentals as the government flooded the market with four trillion rmb from the stimulus plan in  bond yields faced downward pressure more so at the longterm end please see the yields of chinese government treasury bonds at maturity  years vs  year and the spread thereof in the below figure wealth management products channel a considerable amount of deposits out of the banking system to capture higher yields outside of bankingsector supervision in form of trusts for example but the amount is still not pivotal enough to change the above explained pattern in a fundamental manner 
  data source wind ccdc 
  china didnt open up to the outside world until the very late s now china provides half of the manufacturing goods and close to half of electronic products in the world and the economy is still growing at around  percent obviously a good part of chinas production structure has been configured to export mostly to the developed economies which are dominated by the service sector as the global demand in the developed economies lost its momentum china faces the necessity of reconfiguring its economic structure to better serve its domestic consumers which stands at  times the number of us consumers this reconfiguration process is surely painful as demonstrated by the empty factories in the traditional export production oriented cities but to me this is more of a textbook case of austrian economics at work capital and labor have to be freed up for those productions currently being demanded by the market and this takes time moreover quick capital formation in the past three decades lifted labor productivity with which the manufacturing sector needs to be upgraded and the tertiary sector needs to be expanded to serve a more affluent society comparing with more than  years ago so that chinese consumers dont have to go to japan to buy hitech toilet lids  a healthier skepticism of stimulus 
  needless to say the current debt level causes concern and the deeper concern is whether debt growth trajectory will continue ultimately whether or not the debt will grow at the rate of post  stimulus phase is a function of how fast the chinese government runs the money printing press a recent article on the peoples daily  the mouthpiece of china communist party ccp  quoted the diagnosis from an authoritative figure on the chinese economy and its cure this authoritative figure suggested there should be no more money printing to stimulate the economy and that the chinese should be prepared for a lower growth rate comparing with its own historical average of  percent anyone with an understanding of chinas political messaging system would not be mistake it for anything but an opinion handed down from the very top of chinese leadership this can be considered a concluding remark on the policy swings for the past several years 
  the xinhua news agency the mainstream media group recently followed with a commentary suggesting resistance to the use of stimulus plans in the face of slowing growth xinhua also warned of a disastrous result if its advice is not followed messages like these are refreshing to hear nowadays among the mantra of the stimulus chorus around the world how chinas policy direction is to be implemented remains to be seen but at least the insidious effects of stimulus is well recognized by those at the top of the regime and openly represented by mainstream media in addition a series of measures to lower tax burdens for corporate and households alike are also being introduced and the central government is pushing hard for businessfriendly deregulations and increasing economic freedom 
  china has its problems tons of them china may or may not be the first to blow up in the coming wave of crises as many people say no matter whichever the case i am more convinced that china will be among the first ones to revive  because it has high savings to invest it has a welltrained labor force with one of the most vibrant if not the most complete manufacturing chain and the manufacturing sector still contributes to over  percent of its gdp it is still in the middle of a rapid urbanization process it is not yet a welfare state chinese people are fully aware of the fact that their safety net is the result of their own frugality rather than government promises china has the biggest potential market of  billion people with a rising middleclass that is still increasing in numbers and share in population serving them well is one of the biggest business opportunities in the st century 
  jing jin is associate dean at the china economics and management academy in beijing newsletter sign up get the latest breaking news  specials from alex jones and the infowars crew related articles