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Do you any opinion on China and their rising debt that is getting lots of publicity lately.

Chanos has been a perma bear for a few years now and there is a lot of pieces and talk of the credit bubble in China (bigger then the US subprime credit growth, japanese bubble, etc). Pettis is the only one who seems to more positive on low probability that the high debt will lead to a economic collapse but rather a future of slow growth given the heavily regulated nature of china.

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Posted on 05/13/2017 9:03 PM
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Yeah, it’s a huge concern. And we have no way of really knowing when it will ding the markets. But it will. If you remember 2015 that was just a preview of what it can do. Now, it’s not the end of the world because China is still a relatively small portion of US economic growth, but the impact will reverberate through many markets which has wide ranging impacts. If it coincides with a US recession or gets triggered by a US recession (the more likely result) then it’s a big worry….

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Cullen Roche Posted by Cullen Roche
Answered on 05/18/2017 1:37 PM
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    China has an excess capacity boom. Basically, China prints money to hit its GDP growth targets by building stuff. Their economic system doesn’t care about profit. It’s all about throughput.

    China also has very low consumption levels at ~45% of GDP as its total NGDP is at ~$11-12 trillion. In other words, it’s consuming power in the global market is < $5 trillion. China also pays ~4-6 times for energy as the US, which means its non-energy purchasing amount is ~$3-4 trillion. These imbalances aren't sustainable.When fixed capital formation as a percentage of GDP is growing faster than GDP growth, that's necessarily unsustainable (since the purpose of investment is for future consumption and investment rates higher than consumption rates are unsustainable for eternity). China also socializes the debts, which means that this run-up in debt to sustain capacity levels and GDP growth will just show up as lower growth later on.And Pettis is likely correct about structurally lower growth in China's future. In development economics, this concept is called the "middle income trap". For a poor country, getting to middle-income status by taking advantage of its cheap labor, no regulations, and so forth is very easy and initially produces rapid growth. But as the country progresses into higher income/capita, growth rates basically fall off a cliff. To give you an example, I was called a China bear when I was saying Chinese growth rates would be <6-7% by the end of the decade. They're already at <7% growth even though they print or create liabilities into their banking system by ~$8-10 trillion in 2016-17. That's terrible. China's current growth is basically cannibalistic. The cost of environmental degradation alone makes much of the growth unproductive in the long-term.

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    Posted by Suvy Boyina
    Answered on 05/20/2017 9:26 PM
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