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China may be next in debt crisis

China.org.cn, April 7, 2013

• Fred Hu (Right), chairman of Primavera Capital Group. [Gong Jie/China.org.cn]

  
  China may be next in the debt crisis, Chairman of Primavera Capital Group Fred Hu said at the 2013 Boao Forum for Asia on Sunday. Fred Hu made the remarks during a sub-forum entitled "The Debt Crisis: Who’s next?" at the BFA in southern China's Hainan Province.
  
  

  The debt crisis has so far occurred in Europe and South America. Many experts and economists have discussed who will be be next to fall victim to the crisis. During the BFA discussion, answers to that question varied.

  Xiang Huaicheng, former Chinese finance minster and former chairman of China National Social Security Fund Council, believes that China's debt issue has not reached a particularly dangerous level just yet as the country does not have a high debt-to-GDP ratio. According to him, the majority of the debts are internal and the government has always adhered to the principle of sustainability when handling the debt issue. He said that China's debt-to-GDP ratio stood at about 37.8 percent in 2011 and 40 percent in 2012.

  Xiang acknowledges that although the debt issue is not too serious, some problems should not be ignored by the Chinese government. Take for example, he said, the loans issued by some policy banks stemming from inter-bank bonds, which take on the nature of government debts. Xiang believes that the amount of debts in this regard is not small. In response to the question who is next in the debt crisis, Xiang says that the next country on Moody’s downgrade list will become the next to be in debt crisis.

  However, Fred Hu believes that China may be next in the debt crisis. Although China’s financial situation is currently reasonable, the situation will worsen year after year, said Fred Hu. "Currently, China’s debt-to-GDP ratio stands at about 35% to 37%, which is still reasonable compared with the U.S. and Japan," Fred Hu says, "However, with the increase in social welfare and public spending in the future, that figure could increase to 45% to 50%, which is very dangerous to China." According to Fred Hu, the problems are set to break out in the U.S. and Japan when the debt-to-GDP ration reaches about 36%. Fred Hu suggests the Chinese government to adhere to a consistent policy toward the debt issue, and asks the new Chinese leaders to be cautious in dealing with the debt issue.

  Vice President of Chengdu University and Director of the Center for Strategic and Economic Development Studies for G20 and Emerging Countries, Zhang Qizuo said that the next debt crisis will happen in the United States. He believes Spain and Italy may suffer from debt crisis on the short term. Nevertheless, the United States will be next in the debt crisis in the long run. "The United States is transferring the debt crisis to the rest of the world by depreciating the U.S. dollar as the U.S. currency is the world currency," says Zhang Qizuo, "They can transfer their debt crisis once they start the machine to print US currency." However, with the development of currency diversification, the debt crisis will break out one day in the U.S. when that method proves to be no longer effective.

  The Boao Forum for Asia is one of Asia's biggest annual economic meetings. The theme of this year's conference is "Asia Seeking Development for All: Restructuring, Responsibility & Cooperation." There will be 54 sessions altogether, including the Opening Plenary, 18 sub-sessions, 15 roundtables, six closed-door meetings, four luncheon sessions, two dinner sessions, seven dialogue sessions and one evening talk. The sessions are different in size. More than ten state and government leaders from Asia and other regions will be invited to the three-day forum, which runs from April 6 to 8 in Boao, a coastal town in southern China's Hainan Province.

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