Why China’s Local Government Debt Crisis Just Got Worse

Ever since China's rapid property boom in the 90s, local governments have been using lands as collateral to borrow loads of money. But various factors are now putting local governments under strain, and it doesn't appear to be getting any better any time soon.

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00:00 - Introduction
01:16 - Disclaimer
01:33 - How GDP Works in China
02:25 - Local Government Debt Crisis Explained
04:31 - Why it’s Getting Worse
07:37 - Sponsored Content

[pistolen]

If you dig holes and fill them in you're increasing GDP.

[Killrballoon]

Another point to make on the local government’s over reliance on infrastructure projects, is not just just that they don’t increase productivity, but that they can actually lower productivity due to maintenance costs. If you spend all your money maintaining bridges that no-one needs to use, you aren’t able to invest in other, more productive areas of the economy.

[SwissSareth]

You mean just telling people to "grow this much" every year doesn't magically allow them to come up with sustainable ways to do so?

[ArabicReja]

Chinese property sector, which accounts for 30% of GDP, is crashing.
- Exports and imports, accounting for 37% GDP, are down.
- Foreign investment (FDI) is falling over 90%, lowest in 3 decades.
- Foreign visitors are down 96% compared to the pre-pandemic level in 2019.
- Consumer prices are experiencing deflation.
- Youth unemployment hits over 21%, a record.
- Its fast-shrinking workforce is 10 years older than neighboring countries.
*Still, China keeps reporting outrageous GDP numbers.* Lol
Where does the growth come from?

[sarawilliam]

If China's real estate crisis triggers a market crash or a financial crisis, it could send shockwaves through the stock markets worldwide. I’m worried about my investment of over $600K stocks. Is this a time to consider diversifying my portfolios?

[ivanivanofivansson]

The comment section is filled with strangely defensive and naive comments. Within 20 minutes already

[JustInTimeWorlds]

Would you say they’ve built a bridge too far? …. I’ll see myself out 😂

[albertteng]

You're forgetting that if you abruptly stop construction projects, infrastructure projects especially those who have already started construction, this will cause a large ripple effect on the economy. Im not talking about its effect on china's gdp numbers but the construction downstream industry. For example, the steel and cement industry has already programmed future projects that would require more of their material some years ago, abruptly stopping them would cause problems with their liquidity and future loan payments. And what about the construction workers who relied on construction projects for their income. And other support industries who directly and indirectly rely on these projects. Result is many small businesses might close or go bankrupt. Even entire small communities will go bankrupt, unemployement will rise. And add all these up and you worsen deflation and not to mention social unrest

[eranb]

There are three kinds of lies: lies, damned lies, and GDP.

[lastChang]

In 2023, real China's 🇨🇳 economy shrank -3.5% as opposed to 5.2% expansion as officially announced.
- So this year, they will just publish a 5% growth regardless of their economy.

[lastChang]

China 🇨🇳 has been a money-printing machine on overdrive.
During the years 1990-2021, the US printed 6.5 times more money while China printed 147 times.
- It has printed more money than the US and Japan combined, while its economy is only half of them.
- Current Chinese debt-to-gdp is already *highest in the world, at 300%, * according to Bloomberg.
- With stimulus and measures, China's debt will be at 400% to 500% of its GDP in the next decade, according to Reuters.

[randompastahandle]

This is a very well put together and informative video. more like this.

[kevincronk]

I've always wondered, if local governments are paying for things but the taxes are going to the central government, what are those taxes going towards?

[spooksmalloy]

It's fascinating how this is both incredibly similar to the debt issue ravaging English local councils with the almost exact output - English councils basically went bankrupt investing in strange business deals or trying to cover costs for lawsuits they lost.

[stretchchris]

Remember their GDP is 60% inflated so this is really MUCH worse

[BeGunNer]

you didnt just miss the perfect opportunity to say this was a bridge too far??

[KoumotoSeihoFusei]

I love two countries, China and Tibet.
Greetings from the Japanese Senkaku Islands.

[teng]

So you’re telling me that China is like your one neighbor that keeps buying new cars even though he has no use for them and ended up in lots of debts.

[FreedomFinanceFun]

Can't feed your family with a new bridge

[owentill]

I actually went and dug up the original source for the "8 provinces paying over 100% of income on debt servicing" claim. I'd prefer to say it's exaggerated/sensationalised but it's actually understated. The financial times article you linked only mentions 8 provinces but if you go find the source THEY quote and read the data table FT uses as a source it's actually 12 provinces paying over 100% 💀.

For those curious the source in question is "LOCAL GOVERNMENT DEBT DYNAMICS IN CHINA" by Victor Shih and Jonathan Elkobi. 21st Century China Center, UC San Diego.