Beyond Bad Debt: China’s Stimulus Strategy and Long-Term Risks
As highlighted in my previous analysis, China’s booked bad debt already stands at nearly half of the proposed three-year stimulus package ($460 billion versus $850 billion), raising serious questions about the real scope of the problem and whether additional funding alone will prove effective. Whatever further debt exists off the books remains a matter for the future to reveal.
The recent surge in the Chinese stock market suggests that many investors have already capitalised on gains and may soon cash out, potentially limiting the effectiveness of any stimulus measures.
However, I believe that the Chinese Communist Party has objectives beyond simply addressing bad debt. Their strategy appears aligned with the view detailed in the insightful article "The Value of Nothing: Capital versus Growth" by Julius Krein, which observes that "America (and the West) views capital as the dearest input, whose efficiency must be relentlessly maximised; China (and East Asia) views capital as the cheapest input”.
While relying heavily on stimulus and debt-driven growth could lead to unsustainable imbalances and, eventually, a painful reckoning, it seems the CCP is willing to gamble that it can manage these risks while maintaining control.