Biggest Risk Is Leverage, But Leverage Is Rising

January 24, 2016 China Insurance Society Annual Symposium, national finance and development laboratory director, former vice president of China Academy of Social Sciences Li Yang admitted that China's economy in the new normal in the biggest risk is leverage. We now propose a lower leverage target, this task is difficult because of the economic downturn usually leads to increased leverage, but at this time we just made ​​deleveraging a mission, the task is very arduous.

Li Yang believes that in the study of China's debt risk, now almost one-sided foreign institutions say in China, the debt will lead to problems, our finding is China debt is no problem, because although there's a lot of debt, there are more assets.
When the monetary system is credit based, asset prices are a function of debt. This isn't the full Keynesian nonsense of not counting debt because it is someone else's asset, but it is still not realistic. If there were enough assets, there wouldn't be a debt problem because the income thrown off by the assets would cover the debt.

From the speech by Li Yang:
We said earlier, all debt is leverage. It is easy to give an impression of the situation in China is very bad. If we just in terms of the debt situation is grim, but we use the balance sheet of this architecture is that you want to explain it to have formed the debt, that is to say, we are not free to borrow, borrow I will do something, for China, whether it is business, even the Chinese government, especially local governments in China, he is borrowing the formation of assets, but a significant part of the assets that can generate cash flow.
Not enough cash flow to service the debt though, let alone repay it.
But when we consider the debt issue, we must consider especially when considering the debt crisis of liquidity, many assets are assets, but does not have liquidity, such as land, who said that this is certainly an asset, is a long-term asset, but in the land sometimes the price is not sold, not sell. So we have to further investigate the risks Chinese debt, and the ability to solve the debt problem China, it is necessary to such a number of illiquid assets, liquidity is not high or culling out, leaving only highly liquid assets, the result is very optimistic we value the sovereign fund assets highly liquid assets of 28.5 trillion leaders often say that we are very flexible, a lot of weapons, some of the basis of all this discourse is that I do have 28.5 trillion, you can always use the assets, which is our foundation.
Does anyone think the CCP will liquidate the governments and SOEs to satisfy outstanding debts? There's no discussion of mass privatization.

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