From 240% to 310% Debt/GDP in just a few years

Nikkei Asia Review:

Allowing giants like Goldman Sachs and J.P. Morgan Chase to grab 51% of mainland securities firms radiates confidence. So does removing caps on the overseas stakes in banks. But what if Xi’s unquestioned omnipotence makes China’s economy more fragile in the long run?

For all the pageantry, muscle-flexing and bold decrees at last month’s 19th Party Congress, Xi is demurring on what should be the most important reform: scrapping China’s annual gross domestic product target, now set at 6.5%.

Even before Xi’s time, back in 2010, famed short-seller James Chanos of New York-based Kynikos Associates began describing China as the Enron of economies. Beijing, he warned, was on a “treadmill to hell” with expanding asset bubbles, a fudging of official data, double account books, weak transparency and a dot-com-like denial than things could ever end badly. “Only in China,” Chanos quipped to Bloomberg recently, “would growth in banking assets of 15%, twice the GDP last year, be considered deleveraging.”

Now it is People’s Bank of China Gov. Zhou Xiaochuan raising related concerns as he prepares to retire. Zhou has gone so far as to warn of a “Minsky moment,” when a debt-fueled boom meets a nasty end. Chinese bank assets, it’s worth noting, are at least 310% of GDP compared with 240% in 2012, when Xi was taking the reins, according to the International Monetary Fund.

By clinging to the GDP target model, Xi is keeping China on the treadmill. His emperor-like dominion makes it all the more necessary for officials to toe the line. That’s why good news on China’s economy going forward may actually be bad.

The author also has a piece about 80% of skyscraper construction in the entire universe taking place in China.

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