Headwinds that are sweeping the Chinese government and society into crisis and instability


Government debt mounts up

Many analysts have expressed concern over the overall size of the Chinese government debt.

In 2017 China recorded a government debt equivalent to 47.60 percent of the country’s GDP. Government Debt to GDP in China averaged 29.75 percent from 1995 until 2017, reaching an all time high of 47.60 percent in 2017.

According to Yan Yan, chairman of China Chengxin International Credit Rating, total local government debt could be as high as 50 trillion yuan if financing vehicle borrowings, the government part of public-private partnership projects and lending arranged through policy banks is included.

Besides, there is the hidden debt or private debt.

Neither the ministry nor the National Audit Office (NAO) has given an official estimate of the country’s “hidden” debt but the NAO has named six cities for hiding a combined 15.4 billion yuan of “implicit” government debt as the end of 2017.

Shadow banking has risen in China in the past ten years, posing risks to the financial system.

In 2008, China’s total debt was about 141 percent of its gross domestic product. By mid-2017 that number had risen to 256 percent. Bloomberg Economics estimates is that by 2022, China could face a debt-to-GDP ratio close to 330 percent.

Countries that take on such a large amount of debt in such a short period typically face a hard landing. That’s why everyone—academics, private banks, the International Monetary Fund, the Organization of Economic Cooperation and Development, the Bank for International Settlements, and People’s Bank of China Governor Zhou Xiaochuan—is sounding the alarm.

Property Bubble will someday bust

Real estate has been the driver of the Chinese economy in decades. By some estimates, it accounts directly and indirectly for as much as 30 percent of GDP.

In the first half of 2018, property prices are surging throughout China despite controls put in place to ward off a bubble. Smaller cities taking advantage of loopholes are leading the upswing. Housing prices rose from June to July in 65 out of 70 principal cities, official data shows.

Rather than curbing potential risks, China is simply ramping up development. New starts and land purchases have grown strongly through the first five months of 2018. Investment in residential real estate is up 14 percent and development loans are up 21 percent. Far from reducing leverage, banks are jumping back into the speculative bubble: Mortgage growth is now at 20 percent.

The government is behind the wall of many evils. The national government’s crackdown on shadow banking has actually caused regional authorities to rely more on land sales for revenue.

This has helped to create more “ghost cities”.

According to Dinny McMahon, who spent a decade covering China for the Wall Street Journal, China’s housing vacancy rates, like many other potentially sensitive data, is shrouded in secrecy.

“The biggest problem isn’t the overall levels of debt, but the pace at which it’s been accumulated.” he added.

With the housing bubble, the country has over 64 million empty apartments. Many believe that China can never fix its housing bubble. When to bust? It’s just a matter of time.

China family planning and aging population

China is aging rapidly. About a third of the country’s population will be over 60 by 2050, up from the current level of 17%, according to China’s National Working Committee on Aging.

The aging population has a lot to do with the work force, employment, health care and other social issues.

The parents who have lost their only child are known as shidu in China. As a result of the one-child policy, the number of shidu parents is expected to increase in China over the coming years. According to official figures, there have been at least one million families who lost their only child since the implementation of the one-child policy to the end of 2010 and it is expected to rise with 76,000 per year.

Three years ago, the Chinese government decided to end the one child policy.In May 2018 it was reported that the Chinese authorities were in the process of ending their population control policies.

But the number of births in China keeps decreasing, from 17.9 million in 2016 to 17.2 million last year.

But China’s new campaign to encourage childbirth is also causing concerns that the government may take extreme actions.

Slogans like “Let every woman in the village be pregnant with a second baby is the inescapable responsibility of the village Party Secretary!” can be seen on many rural walls.

A ridiculous act is reported in August that a county in Hunan province started to impose tax on parents having more than two children an amount of their two years’ earnings, for using “extra social resources”.

Poverty, Protests and dissent  

Every year China has tens of thousands of protests across the country. In spite of restrictions on freedom of association and of speech, a wide variety of protests and dissident movements have proliferated both inside and outside China.

With a national censorship, China has become a “digital police state”. Prosecuting rights activists and restricting  people’s right to speak will result in more anxiety, discontent and panic in the society.

Income inequality, China’s dirty little secret, worsened year after year, with the top 1 per cent now owning a third of the country’s total wealth.

Despite its economic rise, at least 30 million Chinese remain poor because jobs, infrastructure and public education have missed their villages.

Chinese authorities have pursued a variety of strategies to quell protests. This includes the use of coercive measures of suppression, censorship, the imprisonment or “re-education through labor” of dissidents and activists.

The measures may work in the short run, but they shall never solve the problems.

And the wrestling amid the top leadership of the Chinese Communist Party adds to more uncertainty and instabilities.

The strongest headwind of all is that the majority of Chinese population would like to see the collapse of the CCP.

Staff Editor


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