China’s Economy Is In Turmoil! A Major World-wide Recession May Be on the Horizon
Guest Post by Joe Hoft
Bloomberg reported Saturday that China’s economy is again slowing after there were hopes for a March recovery.
April data released today shows that industrial output, retail and investment all missed estimates. The poor data dashes hopes that China’s economy is on the rebound and is a cause for major concern for all global economies due to the size of China’s economy, the world’s 2nd largest to the US.
Another report notes that China’s economy, grew only 6.9% last year, which is the slowest the country has grown in a quarter of a century.
China like the US now faces a huge amount of debt. Much of China’s debt was generated by local governments which funded incredible amounts of infrastructure projects but at the same time have built ghost cities and roads-to-nowhere as local officials took advantage of ultra-low borrowing rates. Some estimates show China’s debt-to-GDP ratio at more than 240% at the end of 2015. (The US’s debt to GDP was at 104% in 2015 – not counting unfunded liabilities.)
China’s state-owned rail corporation alone is reportedly more than $600 billion in debt, which is almost twice the size of Greece’s obligations. Greece, whose debt crisis has needed repeated bailouts, had an estimated public debt of $356 billion at the end of 2015.
China also has a significant number of unsold homes and sagging exports. In response, China’s government has approved measures to boost exports but these actions have worsened relationships with trading partners that say Beijing is flooding their markets with unfairly low-priced steel and other goods.
Another area of concern in China is the non-performing (bad) loans of its commercial banks. These loans are estimated to be around $706 billion with the number increasing significantly. Many analysts believe the situation is actually far worse than this. There are estimates that China’s bad loans are between 15% and 19% of all loans outstanding.
With China, Europe, the US and Japan all in terrible shape economically, maybe Republican Presidential nominee Donald Trump is right in suggesting the US is heading towards a massive recession.