The Bank for International Settlements has recently released its data on China’s debt to GDP levels. The news was not encouraging. In 2011, the nation’s debt to GDP stood at approximately 180 percent. At the end of the second quarter in 2017, the figures had risen to 255.9 percent. Investors and analysts alike have been increasingly fearful as this debt level did not stop rising.
To their credit, the Chinese realize that they have a problem. They have admitted that their long-time economic model of utilizing debt to increase the economy is simply unsustainable. Since then, they have begun efforts to move the economy from debt to consumer-driven growth. The national government has attempted to address the increase of what they call risky credit. They have seen mixed results.
It is the corporate sector and the state-controlled companies that make up for a substantial majority of China’s total debt. The credit to GDP measured from non-financial firms increased from 2011’s 120 percent to a recent record amounting to 166.8 percent, per the BIS data. The government managed to bring it down to 163.4 percent by 2017 Q2.
To do this, they have significantly cut the excesses in industries that were not performing well like coal and steel. They have also clamped massively down on the international investments of most firms. Despite this, they have only brought their ratio down a few percentage points.
Local governments are another problem area where China’s finances are concerned. They borrowed heavily from the “shadow banking” industry and piled on massive amounts of debt in an effort to improve the regional infrastructure.
This has become so serious that Fitch Ratings warned the nation is in danger of experiencing its first default of local government. Beijing has worriedly begun tightening up on the finances of the local governments. It may still be a case of too little too late.
China has also racked up large amounts of off-balance sheet activity that threatens the financial well being of the country. Moody’s recently reported that this shadow banking sector only “barely grew” during the first half of the year in 2017. Yet the sector is still showing 64.7 trillion yuan. Many observers have reported that this credit has only migrated to other areas that are transparent and regulated.
Yet Chief Investment Officer Andy Seaman of Stratton Street has pointed out an often forgotten truth where the worrying Chinese debt situation is concerned:
“Everyone tends to focus on the gross amount of debt… Although China’s gross debt numbers are high, the U.S. numbers are higher still, so it’s not really a fair comparison.”
This chart affirms how dramatically U.S. debt has risen over the last decade:
Is Your Retirement Portfolio Protected from Runaway Chinese and U.S. Debt?
The sobering statement and chart remind you of another reason you need to protect your retirement portfolio. Not only does the potential implosion of the Chinese economy under a mountain of debt threaten your hard earned assets. The U.S. government is in a similar position. Though the American debt to GDP is only 106.1 percent as of end of 2016, this is still more than $20 trillion dollars. Both the Chinese and the U.S. governments owe more money than they can possibly hope to repay at this point.
This explains why you should not keep all of your retirement eggs in a U.S. dollar basket any more than you should in stocks and bonds. Gold will hedge your portfolio when markets and currencies falter. Click here right now to obtain your free and no-obligation gold IRA rollover kit from America and Canada’s best-rated gold company Regal Assets. This way you will have all of the information you require in order to safeguard your IRA account with a partial diversification of your retirement assets into tangibly held, physical gold.