China's sovereign debt at 25% of GDP is one of the lowest in the world and speaks volumes about Bejing's ability to keep expenses under control....NOT.
China's sovereign debt has to take into consideration the debt of the states. When that happens the debt/GDP ratio climbs to more than 80%, and if you add on its pension obligation, then you are in the Japanese nosebleed level of 400% to 500% of GDP. China is hardly alone in playing games with its balance sheet, Mexico is infamous for excluding from its sovereign debt burden any of the mega projects it has built in the past six years, or the debt of the state oil and electricity companies.
China's problem is fundamentally incurable., and will have to be forgiven one way or another. The problem is that virtually 100% of China's debt (direct and indirect) is held by its citizens (individual and corporate). The government thought they were smart when they made debt sales price secret, the problem is that foreign holders sold at whatever they could get a few years ago.
Their problem is even graver if you take the real estate bubble, because people did not purchase real estate to have a home or generate income from leasing, rather it was like a piggy bank, the apartments or houses were bought, and left empty to be sold when they needed money for their retirement.
In addition, four years ago, the government pushed to make property acquisition harder. The effect has been to push the developers into bankruptcy. So many millions of Chinese have purchased properties in China and abroad (aka Malaysia) that have not been completed by the developers, and so the Chinese banks are still requiring mortgage payments on the incomplete (and sometimes not even started) properties. That is a problem because Chinese investors see not only their savings (aka the apartments) evaporate, but the lenders are still requiring payment. At the same time, the government-owned developers walk away from their obligations.
Over the past few years, the Chinese government has hidden the scope of the overbuilding problem. 10 years ago, there were a few phantom cities, but the government's own statistics department admitted that there was sufficient excess housing capacity for a billion people.
So the truth is that demand for new construction should fall to near zero, as there is massive excess supply, but state governments rely on these new developments to fund ongoing activities.
We have seen the beginning of the end, with smaller banks being merged into larger banks, shovelling the problem of non-performing loans into the future. The value of Chinese real estate will probably fall by 40% to 80% if not more, there's just way too much supply.
That means state government bankruptcy, construction company bankruptcy, and 20% of the economy disappear. At the same time, an aging population wants to liquidate its savings (aka the extra apartments they purchased as an investment), to fund their retirement. These are the people protesting now.
That's a big problem, the only solution for the government is massive repression. It also works within the CCP's strategy of staying in absolute control.
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