#China defaults full
#China defaults series

The result of the yuan following suit will be highly uncertain. The Fed nearly did this before in 2008 by doubling its monetary base. This means that PBoC needs to print 1.5 times the existing monetary base to fill the gap.

China’s latest (May) monetary base stood at 32.5 trillion yuan, or US$4.8 trillion. Even exhausting the US$3 trillion foreign exchange reserves, there’s still a US$7 trillion shortfall. Why do they let the too big to fail, fail? Because they know there’s really no way out. The message is clear: The green light of massive default is on. The recent rescue plan was about raising only up to 0.3 trillion yuan, or US$0.04 trillion, with the People’s Bank of China (PBoC) contributing, at most, 10 percent of this, i.e., US$0.4 billion. If 10 trillion has to be wiped out, the ultimate default rate could be as high as 40 percent to 50 percent, counting only real estate defaults.īy comparing the total debt with those held by the central government, local governments, and external parties, one can see such US$10 trillion in potential bad debt should be largely raised by the private sector, given the outstanding by the government is less than this total.

#China defaults series

What concept is US$10 trillion, an astronomical number to most people? Look at the accompanying chart with the total debt issuance series in black-the total outstanding at the end-of 2021 was US$21.8 trillion.

#China defaults full

This amount bubbled up over the years and should go to zero after full deleveraging. Transforming to the total flats’ value, this is 69 trillion yuan (130 divided by 21.4, multiplied by 11.4), or roughly US$10 trillion (using an exchange rate of 6.9). This means that at least 11.4 percent of the above vacancy rate is dangerous. The above flat vacancy was estimated based on a vacancy rate of 21.4 percent, where 5 percent to 10 percent is internationally regarded as usual, and more than 10 percent is regarded as dangerous. A total of 130 million excessive apartments should be valued at 130 trillion yuan (US$18.85 trillion). Further, assuming a size of 50 square meters (or 545 square feet), each flat should be worth 1 million yuan (US$145,000). Based on a 2018 report from the Survey and Research Center for China Household Finance of Southwestern University of Finance and Economics, there were 130 million vacant flats.įrom real estate agents’ figures, the median housing price across cities is likely 20,000 to 30,000 yuan per square meter. Life will be much simpler if we assume all problems originate from excess properties. Yet, we can still have a very vague idea about how significant the debt is by doing some basic arithmetic. The amount of defaults jumped to a new high of 128 billion RMB in 2018. Even a single major developer could have a trillion yuan (US$145 billion) debt the overall total will be a mystery. The amount of defaults in the Chinese bond market was only 1.26 billion RMB in 2014, reached a first peak of 30.1 billion RMB in 2016, before falling to 27.7 billion RMB in 2017. The China debt crisis led by the real estate bubble burst will be unprecedented.