The apparent mass exodus of business tycoons from China and Hong Kong that we have been seeing of late —Dalian Wanda Group chairman Wang Jianlin (王健林) taking his investment overseas, just as Hong Kong billionaire Li Ka-shing (李嘉誠) has been shifting his focus to Europe — have led to both men coming under considerable criticism online.
At the same time, Wang’s Sunac China Holdings is under investigation by the China Banking Regulatory Commission, rattling the stock markets in China and Hong Kong. Whether or not this bombshell suggests that China’s debt bubble is about to burst, or if it is merely the aftershock of a political purge, remains to be seen.
China’s debt has been getting increasingly severe since the global financial crisis of 2008. According to Bank for International Settlements statistics, in September 2015, China’s debt — government, business and private citizens — was already verging on critical, standing at 292 percent of GDP.
This, coupled with the slowdown in economic growth in the past few years, has meant that China’s debt is fast growing into a severe burden and risk. Moody’s recently downgraded China’s sovereign debt and US investor Jim Rogers has said that the sovereign debt crisis facing China is more severe than the 2008 crisis.
Following the global financial crisis China was able to relax its monetary policy to keep markets liquid and to avoid the risk of the economy seizing up via huge fiscal injections. Until recently, China’s economic growth relied on the investment-driven manufacturing that essentially turned it into the world’s factory and made it the world’s biggest trading partner, allowing it to accumulate prodigious foreign currency reserves, drive wage and job growth, and eliminate economic recessions that could lead to social unrest and political upheaval.
However, it appears that investment no longer has the power to drive robust economic growth, and so the government increasingly has to rely on borrowing and credit to ensure continued prosperity in the market.
Moody’s has said that China needs to rely increasingly on borrowing to maintain the level of growth the government desires.
China’s economic growth has shifted from being investment-driven to being dependent on financial leverage and manipulation of capital flows. The inevitable outcome is an economic slowdown and distortion of the financial markets.
Actually, China’s debt level is not really all that high compared with that of other developed countries, neither is its sovereign debt-to-GDP ratio. So, theoretically, there is no cause for panic.
However, that does not mean Beijing can relax. First, debt is increasing at quite a clip and has almost doubled in size since the financial crisis. Second, money and power are often inextricably linked in China, and many businesspeople conflate the so-called princelings with wealth and with amassing huge amounts of money through illegal practices including corruption, graft and bribery — what is known in the West as rent-seeking activities and crony capitalism, and which is rife in China.
What this means, essentially, is that the country’s wealth is being commandeered by a small minority of individuals in the business and political classes.
Chinese economist Zheng Zhi-yao (鄭志遙) has lambasted this culture: “Clearly, reform of the financial system failed long ago, and large amounts of money, the country’s money, the money for the future, has been stolen by certain well-connected individuals.”
During this process, debt from loans to private sector businesses has quickly accumulated, seemingly as a result of market discipline, but actually, at core, the result of a political problem, and a symbol of the collective interests of business and politics.
If the economy is not strong enough to support it, this kind of debt could well implode and political conflicts or purges could even catalyze a debt crisis.
However, even though the Chinese economy has started to slow down, it is still growing at 6 percent annually and the government continues to emphasize the importance of financial security, reinforcing measures to shore it up to this end. So it is too early to be talking about a debt crisis due to a weakened economy.
The flip side of this is that the political purges resulting from Chinese President Xi Jinping’s (習近平) anti-corruption drive could lead to the collapse of powerful business interests bereft of the factions Xi has gone after, precipitating a default on their debts which could in turn cause a financial crisis.
Xi’s victims since the beginning of this year include financier Xiao Jianhua (肖建華) being taken from Hong Kong to China for questioning in January; former People’s Insurance Group president Wang Yincheng (王銀成) falling afoul of the authorities in February; the dismissal of China Insurance Regulatory Commission chairman Xiang Junbo (項俊波) in April; China Banking Regulatory Commission assistant chairman Yang Jiacai (楊家才) being removed from his post in May; and Anbang Insurance Group chairman Wu Xiaohui (吳小暉), related to former Chinese paramount leader Deng Xiaoping (鄧小平) by marriage, taken in for questioning last month.
It is clear that Xi is eradicating the residual power bases of former Chinese president Jiang Zemin (江澤民) — and even Deng — with Dalian Wanda Group and Sunac China Holdings coming in for increased financial scrutiny. All of this has made the financial markets jittery. It raises concerns that one more push could cause a financial crisis precipitated by Xi’s purges.
Wang has previously cautioned that the property market in China is out of control, sufficient to create the “mother of all bubbles.”
Kept afloat by huge amounts of loans, this property bubble could be seen as the mother of all debt bubbles. It is on the brink of bursting and, coupled with political tensions, the markets could soon spin out of control, leading to the collapse of the economy, putting paid to Xi’s “China Dream” in one fell swoop.
Exactly how the combined effect of the debt and political crises will impact China is something that should concern the entire world.
Translated by Paul Cooper
Recently, China launched another diplomatic offensive against Taiwan, improperly linking its “one China principle” with UN General Assembly Resolution 2758 to constrain Taiwan’s diplomatic space. After Taiwan’s presidential election on Jan. 13, China persuaded Nauru to sever diplomatic ties with Taiwan. Nauru cited Resolution 2758 in its declaration of the diplomatic break. Subsequently, during the WHO Executive Board meeting that month, Beijing rallied countries including Venezuela, Zimbabwe, Belarus, Egypt, Nicaragua, Sri Lanka, Laos, Russia, Syria and Pakistan to reiterate the “one China principle” in their statements, and assert that “Resolution 2758 has settled the status of Taiwan” to hinder Taiwan’s
Singaporean Prime Minister Lee Hsien Loong’s (李顯龍) decision to step down after 19 years and hand power to his deputy, Lawrence Wong (黃循財), on May 15 was expected — though, perhaps, not so soon. Most political analysts had been eyeing an end-of-year handover, to ensure more time for Wong to study and shadow the role, ahead of general elections that must be called by November next year. Wong — who is currently both deputy prime minister and minister of finance — would need a combination of fresh ideas, wisdom and experience as he writes the nation’s next chapter. The world that
Can US dialogue and cooperation with the communist dictatorship in Beijing help avert a Taiwan Strait crisis? Or is US President Joe Biden playing into Chinese President Xi Jinping’s (習近平) hands? With America preoccupied with the wars in Europe and the Middle East, Biden is seeking better relations with Xi’s regime. The goal is to responsibly manage US-China competition and prevent unintended conflict, thereby hoping to create greater space for the two countries to work together in areas where their interests align. The existing wars have already stretched US military resources thin, and the last thing Biden wants is yet another war.
Since the Russian invasion of Ukraine in February 2022, people have been asking if Taiwan is the next Ukraine. At a G7 meeting of national leaders in January, Japanese Prime Minister Fumio Kishida warned that Taiwan “could be the next Ukraine” if Chinese aggression is not checked. NATO Secretary-General Jens Stoltenberg has said that if Russia is not defeated, then “today, it’s Ukraine, tomorrow it can be Taiwan.” China does not like this rhetoric. Its diplomats ask people to stop saying “Ukraine today, Taiwan tomorrow.” However, the rhetoric and stated ambition of Chinese President Xi Jinping (習近平) on Taiwan shows strong parallels with