Market Commentary

China

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There is very little concern about China and the huge debt they are and have been building for years. It may be a case of crying wolf. In the past when pundits and economists have rang the bell of danger about China’s debt woes, China has been able to postpone the implosion that will shrink their economy. In the last 20 years their GDP has grown 20 fold but their debt has grown 40 fold. Their debt to GDP ratio went from 100% to 400% and that is not counting the unregulated debt.

China started to reign in the unregulated debt a couple years ago. However, no one knows the size of this debt and it has been speculated that it is as big, or bigger, than their national. Even the Chinese have no clear idea what it is. The press in China is not allowed to write about debt, a slowing economy, trade issues, or a slowing GDP without government permission so we are all in the dark.

Is this another ‘cry wolf’ situation or will China fall into a recession as debt crushes them. This cannot last forever but China has been able to postpone the pain for over two decades so far. Maybe they can keep it up for another decade. At some point debt requires attention and when it grabs the Chinese attention what will they do about it? How much damage to the economy will it do and for how long? We saw debt cause a deep U.S. recession in 2008 and we still have high national debt, and it is growing, but China is on a different scale.

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