Comment by toomuchtodo
1 day ago
China has been performing debt swaps with local governments to clean up their balance sheets [1], so used as an example. Agree with all of your comment. People make the mistake that China plays by artificial US capital market rules around profit and debt; they do not. They optimize for physical world success, not line go up.
[1] Why China Is Hoping $1.6 Trillion Can Fix Its Hidden Debt Problem - https://www.bloomberg.com/news/articles/2025-04-16/china-eco... | https://archive.today/HsaHV - April 16th, 2025
Ah, I think I get it. Are you saying that regardless of BYD’s continued existence, China will still have 1/3 of the world’s manufacturing capacity?
Yes, exactly. Just as in the US, when an enterprise gets wiped out and recapitalized, all of the physical assets remain. In China’s case, they are the backstop of last resort, and will always recapitalize according to their nation state planning and target outcomes. They allow companies to operate the assets as long as the Chinese government is willing to allow it, but they remain assets of China.
So, essentially, there is a root company called China, Inc. Correct?
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There is no free lunch. Debt in China is still owed to someone. Printing money creates inflation. Oversupply leads to deflation.
It’s why China’s real estate company debt is dragging down the economy as a whole. It’s all connected.
China very much is held to the same rules as the US, especially as it engages with the global financial system.
Which is why they are in so much trouble. The economy is anemic. The last stimulus package barely made a difference. Debt overhang remains.
There actually literally is a free lunch. Debt owed to the government by itself isn’t real. Assets and infrastructure are real.
It doesn’t matter how much you think China is in trouble financially, at the end of the day they still manufacture a third of everything in the world.