For the past several years, alternative media sources warned about an imminent fiscal crisis in America. Due to unmitigated quantitative engineering, it was only a matter of time before the dollar lost its value to hyperinflation. In turn, rivals like China would fill the void. However, a possible Chinese economic bubble would severely spoil that thesis.
Just recently, Bloomberg News reported that two large Chinese borrowers missed their scheduled bond payments. Private investment firm China Minsheng Investment Group failed to repay bondholders despite a pledge to do so earlier this month. Wintime Energy Co, which suffered a default in 2018, didn’t live up to a restructured debt repayment plan.
Any time major institutions fail to honor debt obligations makes business headlines. However, the ongoing drama surrounding China Minsheng and Wintime Energy underscores an escalating dilemma: Chinese borrowers, particularly the big ones, apparently cannot secure financing. Since the health of a nation depends on its major contributors, the debt defaults portend a Chinese economic bubble popping.
Moreover, we’re not talking about small numbers. Amazingly, the size of China’s debt market has ballooned to $11 trillion. To put this figure into perspective, it exceeds the GDP of Germany, France, the U.K., and Brazil combined.
This is all fine and well, so long as the debt load is sustainable. However, the series of defaults suggests otherwise.
Consumer-level Issues Also Suggest a Chinese Economic Bubble
China also has another problem on a smaller scale. Individual citizens have significant difficulty making ends meet. Such troubles make it all the more likely that the Chinese housing market will incur an ignominious unraveling.
Here, pro-China editorials have implied that real estate prices there will avoid cataclysmic, western-style meltdowns. For example, the South China Morning Post’s Zhang Lin references the Asian juggernaut’s “big government and small society” strategy as a broader buffer against economic instability.
However, we have history to remind us about one glaring fact: no nation which has witnessed a surge in government oversight has found economic success because of it. Indeed, one of the biggest catalysts to fiscal growth is to limit government. We only need to look at our own postal services to realize that privatization is almost always a superior roadmap.
Those concerned about a popping of the Chinese economic bubble have reason to fear optimistic arguments. Every asset class remains constantly vulnerable to a sharp correction. Especially, no region has ever escaped a property-valuation bubble without suffering severe pain: just ask Australians how they’re handling their current crisis.
While I’m not suggesting that the U.S. is a risk-free area to grow your money, China is no panacea.