Playing Whack-A-Mole In Hell: China Battles To Avoid A Meltdown

The Heisenberg

Currencies, macro, commodities, geopolitics


Keeping track of the multitude of problems facing the Chinese economy and financial system is a full-time job.

But keeping yourself apprised of the malaise is part of understanding global markets.

Here’s a look through the smog at what is truly a Herculean juggling act.

If you’ve ever lived in New York City, you know that smell.

It’s an olfactory commingling of Halal carts, tail pipe exhaust, and whatever happens to be wafting up from the subway. It hits you like a slap in the face as soon as you push open the doors and leave the marble, cavern-like confines of Grand Central for the bustling streets of America’s iconic concrete jungle. Oh, that smell – it’s especially arresting on cold mornings and can be almost debilitating if you’re hung-over.

But that’s nothing compared to Beijing, where the air is so polluted that on some days (“red alert” days), the smog is so thick that planes can’t land or take off. Some people call it “airpocalypse.” Here’s a photograph taken Tuesday in the city (via Reuters):

And that’s not the only pollution China is fighting. The country’s corporate balance sheets as well as banks’ books are heavily polluted as well – with mountainous debt and souring loans. Have a look at the debt-to-GDP breakdown (from Stratfor):

Now, consider the following commentary:

China’s corporate debt has been growing steadily for years. After relying on exports for economic growth prior to the 2008 crash, Beijing has since filled the gap left by slumping demand for its goods by encouraging domestic investment, particularly in the construction sector. Over time, this investment has led to increasing inefficiencies and diminishing returns, saddling China’s large steel companies with debts too big to service. In September, the Bank for International Settlements released new statistics on countries’ credit-to-GDP ratios, its preferred indicator for impending debt crises. Any score over 10 suggests a country is at greater risk of suffering a debt crisis in the next three years; China scored 30.1.

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