Friday, July 08, 2011

The political risks of China's debts - Victor Shih

Victor Shih
Social instability and a touchy change of power in 2012 are just two of a set of stinging problems China's sky-high debts is causing the country, political analyst Victor Shih tells the Global Post in an extensive interview on the country's shortfall. Some quotes:
Americans probably wouldn't be hurt that much. Some people worry that if there's a debt bubble that somehow bursts, then China will redeem its large holding of U.S. Treasuries to bail out Chinese banks. That is a possibility. I think that if that were the case, others would snap up those Treasuries. Interest rates may go up a little bit, but probably not by that much.

As for the Chinese government, the current leadership steps down from power next year. They don't want to look bad by revealing that they got China into so much debt. On the other hand, the new leaders will want to do more to reveal the problem, because otherwise there's some risk that they will be blamed. So we do see this kind of conflicting tendency within the Chinese government to disclose how much local debt there is....

The downside of all this debt, it seems, is that the government's legitimacy depends on its ability to continually improve the standard of living of its people. Could inflation and debt provoke instability in China?

There is already a huge amount of instability in China. There have been 80,000 mass incidents, some of them are very peaceful sit-ins, but there are thousands of riots in China. But all of these incidents have been very isolated to one or two places, there has not been any sort of inter-regional unrest.

When you have such a powerful apparatus to maintain control, why do you need legitimacy?

Some Arab governments these days may have a tough time with that question.

The Chinese government would say that that's because they allowed social media to operate freely, which is not the case in China.
More in The Global Post

Victor Shih is a speaker at the China Speakers Bureau. Do you need him at your meeting or conference? Do get in touch.
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