China's US$28tr debt burden results in policy split
Contradiction emerging between attempts to deleverage the economy and attempts to boost growth will see more small private companies fail
China has a US$28 trillion problem. That is the country's total government, corporate and household debt load as of the middle of last year, according to McKinsey & Co. It is equal to 282 per cent of the country's annual economic output.
Beijing aims to wind down that burden to more manageable levels by recapitalising banks, overhauling local finances and removing implicit guarantees for corporate borrowing that once helped struggling companies.
Those like Baoding Tianwei Group, a power equipment maker that on Tuesday became the country's first state-owned enterprise to default on domestic debt.
Now hold that thought, and consider this: China is also trying to prop up a US$10.4 trillion economy that is decelerating and probably will continue to do so until next year, or so says the International Monetary Fund.
The economy expanded 7 per cent - the leadership's growth target for this year - in the first quarter, the weakest since 2009 and a far cry from the 10 per cent average it managed from 1980 to 2012.
Against this backdrop, a barrage of policy moves in recent days comes into sharper focus. It also helps explain why various parts of the government do not always seem to be working from the same playbook.