Opinion | How China Keeps Putting Off Its 'Lehman Moment' - The New York Times - 0 views
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In 2008, the U.S. Federal Reserve and Treasury Department also stepped in during the subprime lending crisis to coordinate the restructuring of troubled institutions. But creditor and investor rights and the political risks of bailing out banks limited what American regulators can do; arrangements were reached only after hard bargaining with banks and investment houses. In China, financial institutions have to do what the government tells them.
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The government’s hand is everywhere. The most fundamental asset in China — land — is owned or controlled by the state. The value of China’s currency, the renminbi, is government-managed and regulators are widely believed to intervene in trading on the country’s stock markets.
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Most of China’s biggest and most powerful companies, including all of its major banks, are state-owned, and executives are usually members of the Communist Party, which controls top-level corporate appointments.
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Even healthy and influential private companies can be ordered to undergo painful restructuring or curtail certain business operations
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When nearly every renminbi borrowed is domestic — lent by a Chinese creditor to a Chinese borrower — it gives regulators a degree of control over debt problems that their Western counterparts can only dream of.
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Even the makeup of China’s high debt levels has a silver lining for regulators. China’s aggregate ratio of debt to gross domestic product was almost 300 percent (or around $52 trillion) in September 2022, compared to 257 percent for the United States.
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Ultimately, all of this serves the party’s absolute priority of maintaining social stability; there is zero tolerance for financial distress or major corporate failures that could trigger street demonstrations
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But less than 5 percent of China’s debt is external, amounting to $2.5 trillion, one-tenth of the U.S. level.
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instead of introducing reforms to establish a healthy market-based economy in which inefficient businesses are allowed to fail, China’s Evergrande-style fixes — while defusing short-term crises — reward irresponsible behavior and perpetuate the excessive borrowing and wasteful use of funding that leads to recurring financial distress.
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Soft landings may become harder to achieve. China faces perhaps its greatest array of economic challenges since it began reopening to the outside world in the late 1970s: high debt, an ailing real estate sector, a long-term economic slowdown, rising unemployment, an aging and shrinking population and worsening trade and diplomatic relations with the United States.
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There is a very real risk that China could suffer the same fate as Japan, which is still struggling to emerge from an extended period of economic stagnation that began in the 1990s. Japan’s troubles were caused, in part, by a burst real estate bubble and financial-sector problems similar to what China is now facing.
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China’s regulatory troubleshooters have proven the financial doomsayers wrong again and again. But their biggest test may yet lie ahead.