The recent wave of bond defaults by large state-owned enterprises in the Communist Party of China has triggered panic among market investors. According to the latest report of the International Finance Association, China’s debt has accumulated to three times its gross domestic product (GDP) by the third quarter of this year, sounding the alarm of China’s debt storm. In response, the founder of the Taiwan Institute of Comprehensive Studies, Tai-Ying Liu, said, “China’s debt will explode as soon as it is not under control, and the risk is very high. He believes that China’s finance and finances are structurally flawed and must undergo comprehensive reform.
According to the latest data from the International Institute of Finance (IIF), China’s debt has reached 335% of GDP in the 3rd quarter of this year, much higher than the 302% at the end of 2019, including: Brilliance Auto Group, Yongcheng Coal Power, and Tsinghua Ziguang Group, which had high-profile claims to take a stake in TSMC and buy MediaTek. As of mid-November, the outstanding domestic bond balance reached RMB 18.746 billion, with outstanding U.S. dollar debt A total of $2.45 billion; and CITIC Guoan Group defaulted again on Dec. 15, with a size of RMB 2 billion. These figures show the seriousness of China’s debt problem, which is feared to be the fuse of the financial turmoil.
Will there be a financial tsunami or a debt storm in China? Liu Taiying said in an interview that most of China’s financial information is closed, so he believes that the IIF is likely to underestimate, China’s current debt problem may be more serious than imagined. As far as he knows, China has a lot of local debts and debts of state-owned enterprises that are not included in this statistics, and the Chinese Communist Party has recently started to confiscate private enterprises such as Alibaba, “which is obviously a lack of money.
Liu mentioned that although China is a free economy, the leadership has not yet changed its mindset of a planned economy, or has no concept of the direction of a free economy, which has led to a rapid increase in China’s debt.
In addition, Liu Taiying also pointed out that Chinese Communist Party officials are mostly materialists who do not pay much attention to soft body development, and often tie their governance achievements to hard body construction, because “the promotion of Chinese Communist Party officials depends on hard body construction. Local government officials rely on land sales to raise money for hard construction in order to get promoted, and when funds are not enough, they seek financing from banks. Chinese state-owned enterprises and central enterprises often run enterprises for specific purposes, and the source of funding is not budgeted by the government, but directly borrowed from banks.
Liu Taiying said that China’s fiscal and financial problems are also serious, as it is a country with a long-term trade surplus, but is extremely short of foreign exchange and domestic funds, “How can this be? Foreign exchange outflows can cause excess money supply, yet China still does not have enough money, and also strictly controls foreign exchange, so why is there so much foreign exchange loss? The crux of the problem is that the powerful sons and daughters of the Chinese Communist Party are moving their money out of the country, and the accumulation over time has led to today’s precarious situation.
The situation on the mainland has reached a very dangerous situation,” said Liu Taiying. When will the outbreak occur? He said it is difficult to predict, because the Chinese Communist Party leadership is using planned economic control, but as long as it can not control it will explode, and the relative risk is very high.
Liu Taiying believes that as China’s economic and fiscal policies go backwards, slowly going back to the route of a planned economy and also nationalizing large enterprises, this shows that the CCP is working in this direction. However, he believes that in order to change this debt problem, China must carry out a structural and comprehensive reform of its fiscal and financial policies.
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