Tags: U.S. debt | Chinese debt | S&P | Moodys | debt downgrade

China's Debt Situation: Worse Than The U.S.?

By    |   Monday, 08 Aug 2011 02:21 PM

Think the U.S. or Europe has a debt problem? China's debt problem is actually worse than the U.S. and even insolvent Portugal, which is now receiving European Central Bank aid, according to Fox Business.

 

China maintains that its debt-to-GDP ratio is 17 percent. Not so, according to Moody's.

 

China underreports its debt by hundreds of billions of dollars, Moody's claims, saying it found discrepancies in China's financial figures.

 

China's local government debt, for instance, may be $540 billion more than its state auditor estimated.

 

China's debt-to-GDP ratio is more like 77 percent, when counting contingent liabilities, estimates Stephen Green, an economist at Standard Chartered Bank, Fox says.

 

It could be even higher. Dragonomics, a Chinese research firm, says the ratio is 89 percent. By comparison, Portugal has a ratio of 83 percent, and the U.S. ratio is projected to be 79 percent by 2015.

 

China's financial situation is like a black box, according to Fox Business. Debt is hidden in off-balance-sheet state companies. China's central bank alone has about $1.6 trillion in debt, and credit in the Chinese economy now reaches 200 percent of GDP.

 

Despite the hoopla over Standard & Poor's downgrading U.S. federal government debt from AAA to AA+, the U.S. is still in a better financial situation than most other nations. Investors will continue to hold U.S. Treasuries. Unlike debt of other countries, the Treasury market is deep, liquid and transparent, and the U.S. has mostly good relations with countries buying its debt.

 

Even with an AA+ rating, the U.S. has a better rating than China, which has an AA- grade from S&P because of its large contingent liabilities.

 

In spite of those realities, China used the debt ceiling squabble to chide the U.S. over its finances. "The U.S. government has to come to terms with the painful fact that the good old days when it could just borrow its way out of messes of its own making are finally gone," stated commentary in Xinhua, the state-run news agency. 

 

With over $1 trillion in Treasuries, China is the largest lender to the U.S.

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Think the U.S. or Europe has a debt problem? China's debt problem is actually worse than the U.S. and even insolvent Portugal, which is now receiving European Central Bank aid, according to Fox Business. China maintains that its debt-to-GDP ratio is 17 percent. Not so,...
U.S. debt,Chinese debt,S&P,Moodys,debt downgrade
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2011-21-08
Monday, 08 Aug 2011 02:21 PM
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