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Chinese borrowers default in record numbers as economic crisis deepens

https://www.ft.com/content/f144f763-873c-4b4d-99e7-5e71ae07316d?accessToken=zwAGC5qGxtpAkdPxRPdjhzxLTdOZ515xrgcxbQ.MEQCIEhG03lTafSs2cleU3QQ0SY_ARzXQU2tKa--5R5yEbZYAiBlqjwm6vy71sMy7WJMt9nJ9k0lXn2MBsMKBUqEzIhylA&sharetype=gift&token=a6538a91-b8ea-4f15-ad60-da1f860f28d1

More than 8mn people blacklisted by authorities after missed payments on mortgages and business loans

Chinese borrowers default in record numbers as economic crisis deepens

"Defaults by Chinese borrowers have surged to a record high since the outbreak of the coronavirus pandemic, highlighting the depth of the country’s economic downturn and the obstacles to a full recovery,” the Financial Times reports.

18 comments

singron

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The blacklisting is interesting, but a 1% default rate doesn't seem particularly high. E.g. the US default rate has possiblity never been that low (graph only goes back to 1991): https://fred.stlouisfed.org/series/DRSFRMACBS

echo64

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Comparing numbers between drasticly different countries rarely makes sense. Americas rates work for America, china's rates work for China.

What is important is that its changing from what it has historically been comfortable at.

ChrisLicht

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China’s system has a potential duality:

Everyone from the top to the bottom plays along when the pie is expanding, and endemic corruption can be treated as a predictable cost of doing business.

However, when the pie stops growing, there isn’t the level of contract assurance that other rich countries offer. The Pareto optimal competition between powerful interests once growth fully stalls will be very interesting to watch. Xi will have his hands full, picking winners and losers, and lots of billionaires and centimillionaires will head for the door, taking significant capital with them. Worse, foreign investment will tail off, and decreased predictability will cause foreign companies to look hard at production in other places. At the bottom of the economic ladder, corruption will be much more apparent and challenging.

Xi’s bet seems to be that he can use technological repression tools to manage discontent in a downturn. We’ll see; he may be right. If the Stasi had had access to Palantir, Israeli spy software, and Chinese hardware, Checkpoint Charlie might still be in place.

Num10ck

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if their accounting was trustworthy they wouldnt be in this situation.

AFaithfulNihilist

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China reminds me of people who cheat at video games and forget how much that makes up their playstyle when they go over to someone else's house and can't cheat.

Bishma

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When there was a mortgage boycott The State's answer was a long mortgage holiday. I wonder if they'll do that again.

Wrench

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Mortgage holiday?? Can we switch Columbus Day with mortgage free parking?

nightwatch_admin

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I’m missing comments, including my own so replying correctly is a but difficult. I want to say thanks for all the interesting comments, and it is definitely not as black and white as I thought!

nightwatch_admin

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What’s funny - and worrying - is that China holds about a trillion of US debt. Imagine if they would start demanding that money back, that’s the kind of thing that starts world wars.

jmp242

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I see this a lot online, but I have to ask - where are people even getting exposure to any lending with a full call at any time option by the lender? Like all my personal debt has defined payment terms, just cause the bank might like the money back sooner, they can't come to me and demand a full repayment in any circumstances.

Why would people expect this for government debt? (this all ignores that the US didn't go to China and ask for a loan, China bought treasuries on the open market - it's like owning bonds, not being a bank).

bioemerl

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That's not how that works. Bonds cannot just be asked back like that, they mature over a standard set of time. All you can do is try to sell them to other countries.

And if you do, you're just going to drive down the cost of US debt, the Fed will have to increase interest rates so that people buy from the fed instead. Basically all they're going to be able to do is put a lower bound on American interest rates.

That would be bad, but at the end of the day if the US government needs to fund itself it can still print money.

Also a fire sale on US debt means they have to actually trade it for something. That would create a massive correction in the Chinese economy as there surplus of excess capital and trade turns into a huge deficit, all the factory jobs disappear, American manufacturing booms, and they get the value of what they've produced over the last 20 years that since on the dollar as they fire sell the United States bonds.

Lose lose lose lose lose. I would happily encourage the Chinese to try to do this.

comador

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If I could gild this comment I would, it's spot on, thank you!

Remmock

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Everyone seems to fail to realize that for every dollar of US debt that China owns, we own $2 of China’s national debt. Trying to pull that carpet would be a gigantic mess for them.

Num10ck

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its in US treasuries. if they try to sell them all at once the value would tank. they would have to sell in small pieces at a time to capture the value.

SnotFlickerman

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Look, why does everybody always assume people/business/countries to be rational actors in economics?

Haven't the past 20 fucking years put that theory to bed? There are no rational actors in economics, and lots of humans make wild decisions based on emotion or ideology or what-have-you, but often it has very little economic background.

I'm in the fucking US and we have one political party that claims it is the "pro-business party" and the "law and order party" but in both instances, they promote ideology and law that would undermine successful business strategies and undermines law and order. Republicans would love to be able to choose winners and losers in the economy, and they're too fuck-stupid (or they don't give a damn) that these dumbass ideas would break the economy they spend every day sucking off.

So, don't act like China selling them all at once isn't something that could conceivably happen in humans-aren't-fucking-rational-at-all reality.

Num10ck

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im pretty sure that when economics talks about people acting rationally in aggregate, its like when physicists talk about horses as being spheres. its a workable approximation for the scale they want to trend. we all know someone who spent a ridiculous amount of money on a horrible purchase, like elon musk buying twitter. but overall in general it averages out.

its not the flawed rationality of buyers and sellers thats ruining the economy.

Bishma

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The "good" news is that our debt has a built in fuse breaker (and China knows it). Most of the country's dept is owned by us because when you pay into Social Security, the excess funds are used to buy US debt (as its considered the most stable investment there is). So we can always repay any one foreign debt holder, no matter how large, if congress just passes a bill to starve a bunch of seniors and people on disability.

Rapidcreek

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Yeah, but it's theoretically good investment they have. It would be the last to go and not all at once.