Going back to around 2000, the Chinese Govt started the heavy spending. Their first target was to establish a major vehicle manufacturing capacity. A deliberate choice on their part because the auto industry is a recognized path to up-skilling the work force.
They are in a game of catch-up [and competition] with the West on the one hand, and aiming to lift millions [upon millions] out of poverty on the other hand. The clear policy choice they made was to transition the country from a rural [peasant] economy to an urban economy.
The last dozen years has seen them excel in all facets of a modern technological economy. They are achieving the aims they set for themselves.
Their industries are equipped with the most advanced machine tools, their wages are still internationally very competitive and they are succeeding in moving towards an economy which is less dependent upon export.
They have accumulated a vast international current account surplus, which they appear to be deploying in investments in agricultural assets [in Africa for example]. Any slowdown in their heavy industry output/activity will be certain to hurt Australia, but it is hard to see how that is going to somehow bring ruin to China.
Certainly, they have produced this growth through credit. But that growth was always the intention. There are a few glaring examples of misspent funds, such as the ghost cities, but it is obvious that nearly all of the credit has been directed into productive capacity. It is not the size of the debt which is the issue but rather whether the debt can be managed. That debt was raised internally. It is not money they borrowed externally which has to be rolled over, serviced and buttressed by further borrowing.
The internal issue for China is the amount of excess capacity which can no longer be sustained. In the West such problems are mostly resolved through mergers and acquisitions. The usual result is a rationalization of the workforce ... i.e. lay-offs and redundancies. The Chinese will undoubtedly handle things in a similar way, but in their own way. Their economy is certainly robust enough that they can do these things over a few years to minimize the distress.
Is it likely that the rate of growth for China will slow over coming years? I think that is definitely to be expected. Is that going to bring the Chinese economy to some brink of disaster? Not likely. The growth rate needs to slow down from here and settle at a long term sustainable level. The massive injection of credit into the Chinese economy has done its job. The unwinding of some of the debt in China will be somewhat painful for a period.
The West is still deep in the poo financially and from the Chinese perspective does not constitute a growth opportunity for them. A long period of consolidation for China, with a lower growth rate is not a disaster for China, far from it. It is the West which will feel the pain of a slower China.
Contrast this with the current state of Western finances ....
The last five years has seen Europe and the US borrow in record amounts. Sovereign debt is at unprecedented levels. But all of that borrowing went to purchase debt. And why? Because the Western banking system went berserk and basically bankrupted itself. Emergency borrowing [money printing on a massive scale ... to call it by its proper name] to rescue the banks and make them credit worthy again has got everybody scratching their heads wondering if it is going to work out OK. [It is on this score that the gold price is something of a barometer.]
The US is recovering slowly [and possibly not at all]. That borrowing, if it is going to be in any way justifiable has to be repaid by taxes. It is not looking good for the US [or Europe] because the QE programs are not generating the economic growth to pay for the money printing, at least so far. [If that continues to be the case then economic failure is unavoidable]
To try and compare the borrowing by China [which was directed into infrastructure, growth, development and productive capacity] and the borrowing by the West [which was directed into covering over fraud] is ridiculous. Yes, both sides of the Pacific are deeply in debt. No, they are not equivalent. One party can pay its debts and one party will default.
