Summary: Ripples of Trump’s win rock the boats of
China’s Economy: Living on Borrowed Time
Stratfor, 21 November 2016.
- Barring a decision to loosen government controls on credit, investment and home purchases, China’s housing and construction sectors will slow in 2017.
- Industries that hold the bulk of China’s outstanding corporate debt, including commodities, building materials and other sectors related to construction, will bear the brunt of a sustained housing slump.
- Sluggish construction growth and skyrocketing debt, coupled with sharp reductions in debt maturity periods, could cause corporate defaults and bankruptcies to spike next year, testing Beijing’s legal and institutional abilities to cope with them.
- Meanwhile, increasing U.S. protectionism and other international developments could put even more pressure on the Chinese economy, forcing Beijing to trade its economic reforms for greater spending to keep the economy afloat.
Next year is shaping up to be a decisive one for China’s economy. In the eight years since the global financial crisis struck, the vitality and importance of low-cost exports — the kind the Chinese economy used to rely on — have steadily declined. Scrambling to prop up the country’s growth and protect its near-universal employment, China’s leaders have embraced monetary and fiscal stimulus measures, causing the country’s outstanding debt to balloon to almost 250% of gross domestic product. Corporate debt, by far the largest share of China’s total debt, has likewise surged by more than 60% to top 165% of GDP. Now, a nationwide debt crisis looms at Beijing’s doorstep amid business defaults and bankruptcies, low industrial profits, winnowing returns on investment and the very real prospect of yet another slowdown in the real estate sector. How well Beijing manages these problems in the months ahead will, to a great extent, determine China’s economic, social and political stability for years to come.