James Gruber writes:
Put crudely, and as is widely reported, China has a debt problem. But those who compare this debt issue to the U.S. subprime crisis – a very common comparison – don’t know what they’re talking about. For whereas the U.S. problems originated form excessive household debt, China’s debt problems are at the local government and particularly corporate sector levels. Household leverage remains low while central government leverage is also reasonable.
China’s debt issues are more similar to those of Japan in 1990 and South Korea in 1997-1998. Both of these countries also had serious corporate indebtedness. One succeeded in addressing the problems quickly (South Korea) while the other didn’t (Japan).
There are other differences between the Chinese issues of today and those of the U.S. pre-crisis. Chinese debt exploded from 2009 due to a 4 trillion yuan stimulus package designed to prevent the country from sliding into a recession/depression as much of the developed world did at that time.
