A Debt That Could Stunt China's Economy

repercussions beyond China's borders. Here's Bloomberg's James Mager.

quite prosperous as a result of this industry. But over the years that industry has been in decline and the revenues coming from coal have also been on the way down. The population has been declining over the past decade. The city is looking for ways to try to find new sources of economic growth. What it's looking to these days is more like graphite, which is a material that's used

extensively in things, for example, like electric vehicles. And it's also trying to tap tourism, but its location in a very remote coal part of China, it doesn't really make it it all year round tourist destination, so that's quite a challenge. Another thing that Hagang is famous for more recently is that unlike developed cities in China such as Beijing and Shanghai, the property prices in hagan are actually very very cheap, so cheap that they have begun to

attract people from outside. So these are young people who basically feel overstressed or unable to achieve the so called China dream in the terms of buying their own apartment, and they're looking to move to places like Hogong where they can pick up fairly decent apartment for almost next to nothing. This debt issue facing a place like Hogong is something that the Chinese government and the local governments are certainly not proud of and not something that they

want to broadcast to the world. For example, when we turned up to ho Gong after flying from Beijing. Basically, we were greeted by local officials, a combination of propaganda officials and also security officials. I should say we did not tell them we were going there, but nonetheless they knew that we were coming, and they were determined to do everything they could to influence or at least hinder our reporting. So it was quite difficult to do simple

things like voxpop. But when we did manage to eventually speak to some of the local people, what we found was a sort of obviously a caution about talking about this, and beneath the surface of sort of normality, there definitely was concerns being expressed by all sorts of people that we interviewed. So, for example, street cleaners had experienced delays

to their salaries of up to two months. One hospital worker that we spoke to had her contract, which was directly with the hospital, unilaterally changed, and now she ends up working for our third party company on a salary that's not as optimal or as good as it was before.

has also fell about that same amount. So the whole province of Heilongjong lost about six and a half million people in that ten year period, which is more than the population of most US states. That's people dying or moving to warmer climates further south where there are better jobs. So you're seeing an erosion of jobs. You're seeing an erosion of the tax base because there are less people to pay taxes. There are fewer businesses as coal mines closed down, and so the economy of the city of

Hgang itself peaked in twenty twelve. It never achieved that level that reached in twenty twelve again until twenty twenty two, and that was only because of the big spike and call prices that we saw last year because of the Russian invasion of Ukraine. So you're looking at a city that has a falling population, a stagnating economy, but the debt levels of the city have been rising rapidly over this time as the local government has tried to spend

its way out of these economic problems. We don't have full data, but it seems like the official debt of the government does more than an increase fivefold between twenty fifteen and twenty twenty two. So the government is facing this massive debt burden, but its population is shrinking, its tax base is shrinking, and it's struggling to pay for the services that it's meant to provide and also to pay for the interest payments and the repayments of the debt that it does.

in a similar situation of her Gang. Maybe they're not quite as extreme. This situation is not quite as bad as it is in this place. But as I said, the population of halong Young shrunk by six point five million people in ten years. There are many other cities in the Northeast that are facing this similar problem of a shrinking population decreasing number of jobs. There are many

many coal towns and steel towns across the northeast. It's China's rust belt, and those industries are stagnating and going away. So one problem that these growing debt problems that are popping up in places around China in Helong Jog, as we saw in Hokong in Guejo in the south of the country as well, which is also facing an unsustainable debt situation, is that it makes it much much harder for the government in Beijing to achieve what it's set out.

Is it kind of making financial goals for the next few years. President y Jinping has set a goal of doubling the size of the economy by twenty thirty five. They also have another goal of what they call common prosperity, which in a western center is basically just increasing income equality. So instead of having very rich provinces like Shanghai or Guangdong and then very poor provinces like Halong, jog A, Gueijo.

The government wants to equalize income across the country. The problem is that a lot of these improveraiyed places are also very heavily indebted, as we saw in her Gung, and someone has to deal with those debt problems which

are holding the economy backs. If those debt problems become harder and harder and larger and larger to deal with, that's going to affect growth in those regional economies or frential economies, and that's going to make it much much harder for the central government to achieve both the doubling of the size of the economy, but also harder to achieve this income equality that they're aiming for.

Shanghai lifestyle was through the roof. People were expending excessively on the education of their children, both during the school day but also in the after hours, sending them to extra tuition classes, very very costly, all in order to get them and give them a step up in the China society for when they graduate go to university. So it was emerging inequalities were becoming quite visible, and that obviously goes against what the Party would hope to stand

for in terms of a more equal society. So it was a step by sea to try to address that, and of course we saw that play out in a couple of ways. There was the crackdown on tech after our schooling industry was basically shut down. All of these were kind of negative steps to maybe dial back a

little bit some of the excesses. And then in parallel it goes hand in hand maybe with his strategy of poverty alleviation, whereby the government is trying outreach to these poorer communities around the country, especially rural ones, and introducing plans and programs that are designed to increase their ability

to participate in the modern Chinese economy. So it's kind of like a combination of dialing back to the excesses of the rich while giving the poor a helping hand with the aim of narrowing that gap in terms of income equality.

and job opportunities for their children going forward. So on that note, you know, we did talk to people who were trying to operate small businesses, and there's a sense that the government is looking for more stringently applying restrictions, charging fees and fines things that are actually in a way impeding their ability to do business. So that's one

of the more practical implications on the ground. But another thing that was quite surprising, and again we need to be mindful that these interviews are sometimes conducted in less than optimal situations. For example, I was interviewing one person in a Kentucky Fried Chicken in the city, and there was obviously we were being watched. There were people close by from the government, and they actually came over and

approached us. So under those circumstances, it's really difficult to drill down and get people to be frank about what's going on. So some of the answers we get are sometimes we have to take them with a pinch of salt. One of the arguments people were saying was like, okay, so maybe we're not as economically progressive or developed as other parts of China, but our quality of life, our

pace of life is better here, is slower here. So it's this sort of like explain in a very generous way what the economy and the government actions, how they're playing out. But of course, no matter how generous their take is on their situation. The reality is that if we accumulate an add all of these situations up nationally, that is not going to help she or China achieve their.

And then you have very very poor places in other parts of the country which are very underdeveloped, and the income equality across regions is stuck. And then within cities you also have incredible gaps between the rich and the poor. And this is a real problem and it's and this has been growing as China has grown, and you see these people like Jack Mah from Ali Baba and other incredibly wealthy people. The government looks at that and they say,

these people are very wealthy. There are a lot of other people who are not wealthy, who are poor, who are struggling, who can't afford to buy apartments in the cities where they live. We need to do something about this. So common prosperities are sort of overarching slogan of the government that really is kind of similar to a lot of the stuff you see in other countries where politicians are trying to say the cost of living is too high, inflation is too high, we need to do something to

provide housing and these things that our people want. And I think the interesting thing here is that this kind of shows the difficulty the central government actually has enforcing the rest of the country to do things that they want. I mean, people think of China as this authoritarian state where Chijinpin can do anything he wants, and that's certainly true in some situations. If he wants to do a

specific thing, he can totally make everyone do that. But he can't do that all the time about everything, and so you're seeing this. For example, the government wants to crack down on hidden debt and make sure that cities and provinces aren't hiding dead off the balance sheets but keeping on other balance sheets. And all the cities and provinces places like her Gug are saying, hey, that's a

great idea for everyone else, not for me. So the central government has been trying to de risk the economy by putting all this debt on the balance sheets, and everyone is saying that, yeah, that's a great idea. The riskin is a great idea, but not for us. We want to continue to borrow and spend so that we can develop our economy.

bus services or heating for example, and her gang. In the winter, the local heating company suddenly said, we're not going to provide heating for the city because we haven't been paid our money. So there is these little sort of things that pop up in the local media or whatever. You see these cases. But I think the problem is that this is much more widespread than is being reported.

The population declines, especially the northeast of China is seeing, are incredibly, incredibly damaging the economy, and there's no way that that's going to be reversed. These are aging societies, and the young people who would have kids are looking to move away or have already moved away because there's no jobs.

They do not want social instability. So in order to make sure that that doesn't happen, the government really has to be seen to improve the people's livelihoods. Because the original sort of contract, if you will, between the party and the people is that this is very a little bit over simplistic, perhaps, but we have the power, but we in exchange, we will take care of your livelihood, will give you an opportunity to be part of an

economy that's growing and prosperous. So if that starts to break down, then it does create huge stress points for the government. Now, in terms of trust, it is super

important that maintains that trust. But we've had a couple of incidents in the past couple of years with she and his government where that trust has definitely been challenged, if not eroded, And I think one specific case would have been the COVID handling and the Shanghai lockdown in particular, that was a moment where it looked as if people really were just fed up with the top down government approach.

In the end, he survived that it didn't really have any lasting impact on his credibility, but as these sort of events frequency increase over time, it is possible that this will continue to erode away at She's credibility. So it's super important that the government be seen to take action on this and do it in a way that

has a meaningful impact on the peer people's lives. Now, having said that, there's one issue here is that about the transparency of this discussion, which I begin with, is very very low, and even up until recently, I would say the standard reaction from the Chinese governments, especially through state media, has been to sort of dismiss talk of the debt problem by saying, oh, this is Western media overblowing it. It's actually not that bad, and everything's under control,

it's stable. So there hasn't really been a sort of a deep reckoning with the issue. Now, I think there are indications that that's starting to change. We're starting to see more a little bit more discussion of it in the media, but definitely I don't see at this point a real sort of willingness to tackle this problem head on, and that is an issue. If the government doesn't address this quickly, then it could be that that sort of social tension will only continue to rise.

come you won't pay off my debts? And so they're having to balance these moral hazard of They do need to solve these problems, but if they step in too early, then a lot of the problems won't be solved at the local level where the government wants them to be solved. They'll be solved at the central government level and become a Beijing problem as opposed to a Guajoor problem or a Haylong Jung problem.

less Chinese demand for foreign goods. If you're a commodity exporting country like Brazil or Australia, or if you're a Southeast Asian nation that's looking to move up the value chain by selling manufactured goods to China, if Chinese people are buying less of those goods, that's less income for you, and so there's less growth for the whole world. Basically, So the first way that transmits through is to slower growth in China, and then the second thing is then

how that might affect China's standing. Is that China has been using its growing economic power, and especially it's both exporting, but it's also a huge importer, and it's been using that import power to increase its influence around the rest of the world. If that goes the opposite direction, you may see a change in how much China can influence things that are going on in Africa, for example, or

things that are happening in Southeast Asia. A permanent slowdown of Chinese growth is definitely going to change China's global standing because a lot of China's global standing is based on its economic power.

for example, the handling of COVID. So from that perspective, I'll be looking to see what actions he issues through his team of close advisors, and see how successful he is in facing up to the problem and implementing and devising and implementing a strategy that makes sense, and also looking at the reaction. What I tend to look at quite a lot is what's happening on the ground. What are the protests that are breaking out here, even though they're micro and might be fragmented and spread all over

the country. Who's taking to the streets. Who's going to social media complaining what is the characteristics of those people's frustrations. So looking both from the macro perspective what is she doing, but also looking at the micro level to see if we can see any evidence that this is actually playing out on the street, because to get that evidence is quite tricky, quite challenging, given the fact that there's such a clampdown on reporting and news and social media as heavily censored.

their debts, and then that very quickly got deleted. Those look to be basically calls for help from local governments to the central government, saying we're struggling, we need help, and they seem to be doing that via putting out a report it gets a lot of media attention, and then it obviously gets deleted, but everyone suddenly away is

aware of the problem. So I think we should be watching for more of those things, and I think those things are going to happen more and more as other places face these same kind of issues.

is our producer. Associate producer is Zenobsidiki hilde Garcia is our engineer. Our original music was composed by Leo Sidrin. I'm Wes Kosova. We'll be back tomorrow with another Big Take.