The Great Stall of China

China is the world’s second largest economy, so its rate of growth is important.  America has borrowed lots of money from the country ($1.18 trillion as of December 2017 per the Department of Treasury), more than any other nation.  This could matter in the future if their economy begins to slow since the Chinese government could become more inclined to use excess capital within their own country instead of helping to finance America’s deficits.  Of course, this raises a question: how are they doing?

Official data from China is often considered unreliable.  Pundits believe they have reasons to be less than transparent and that the economy gets artificially goosed by local municipalities in order to reach government goals.  Could we find other signs of their economic stability? This article from The Economist suggests there are signs and that they aren’t encouraging.

Imagine lending money to an investment firm or company but not knowing what will be used to settle the debt when it matures.  For instance, one Chinese investor lent money to a farm and was paid back in ham.  Another lent money to an investment firm, but the company didn’t have the cash on hand to repay the loan, so they sent 100 cashmere pullovers.  One major conglomerate there owns an airline and repaid debtholders with flight vouchers.  Cash crunches in China are growing in number.

Of course, these are anecdotes and may not demonstrate the actual state of the Chinese economy.  Nevertheless, it appears to be a growing trend which may one day reverberate throughout the world ’s economy.  Disappearing liquidity in one country can wreak havoc across the globe, especially in a nation as large and important to finance and trade as China.