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David P. Goldman — In China’s state-dominated economy, a large part of Chinese leverage is state infrastructure spending masquerading as corporate debt

Summary:
Finally figuring it out. The net debt of the non-financial components of the Shenzhen 300 Index is heavily concentrated in a dozen or so companies, all of which contribute to basic energy or transport infrastructure. A full 10% of the net debt of non-industrial SHSZ300 companies is owed by Petrochina alone. This suggests that a great deal of Chinese corporate indebtedness should be viewed as “public works” investment by the Chinese sovereign. There certainly are aspects of the increase in indebtedness that recall Japan’s dependence on public works spending as a channel for economic stimulus. But the point to take away is that we are NOT looking at a speculative bubble in corporate debt but a heavily-concentrated investment in state-sponsored infrastructure.… But the

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Finally figuring it out.
The net debt of the non-financial components of the Shenzhen 300 Index is heavily concentrated in a dozen or so companies, all of which contribute to basic energy or transport infrastructure. A full 10% of the net debt of non-industrial SHSZ300 companies is owed by Petrochina alone.
This suggests that a great deal of Chinese corporate indebtedness should be viewed as “public works” investment by the Chinese sovereign. There certainly are aspects of the increase in indebtedness that recall Japan’s dependence on public works spending as a channel for economic stimulus. But the point to take away is that we are NOT looking at a speculative bubble in corporate debt but a heavily-concentrated investment in state-sponsored infrastructure.…
But the company-by-company breakdown of the location of the debt suggests that in China’s state-dominated economy, this distinction blurs the underlying economics: A very large part of Chinese debt is state infrastructure spending masquerading as corporate debt.
That is not the stuff out of which financial crises are made.
While the West waits for China to crater from growing debt, the steamroller rolls on. Somebody better tell these people to get out of the way or they will be crushed.

Asia Times
In China's state-dominated economy, a large part of Chinese leverage is state infrastructure spending masquerading as corporate debt
David P. Goldman
Mike Norman
Mike Norman is an economist and veteran trader whose career has spanned over 30 years on Wall Street. He is a former member and trader on the CME, NYMEX, COMEX and NYFE and he managed money for one of the largest hedge funds and ran a prop trading desk for Credit Suisse.

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