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China's Debt Problem Worse than Portugal

China's Debt Problem Worse than Portugal

2011-08-08
Source: Fox Business

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Government officials in China, the largest foreign holder of U.S. debt, have been chastising the U.S. over Standard & Poor’s downgrade to AA+.

Guan Jianzhong, chairman of Dagong Global Credit Rating, has said the U.S. dollar is “gradually [being] discarded by the world,” and the “process will be irreversible.”

But China’s debt-to-GDP ratio is worse than the United States’ ratio. It is worse than insolvent Portugal, which is now relying heavily on the European Central Bank for help, and had to go to the International Monetary Fund to get a financial bailout.

 

The U.S.’s new AA+ rating from Standard & Poor’s is still higher than the one assigned to the Middle Kingdom. S&P has China’s debt rating stuck at AA-, the fourth highest level, due to its “sizable” contingent liabilities in its banking system.

China’s own system is jammed with rotten debt held in off-balance sheet state enterprises. Its countryside is littered with eerie, empty ghost towns. And Moody’s Investors Service says last month that China’s local debt was understated by hundreds of billions of dollars.

Despite that, the People's Daily said S&P’s downgrade of the U.S.'s credit rating "sounded the alarm bell for the dollar-denominated global monetary system.” China owns an estimated $1.16 trillion in U.S. debt. China prints yuan to hold down its value so as to keep its exports dirt cheap. It then uses that extra printed currency to buy U.S. debt.

Here are estimates to keep handy as this debate rolls along...





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