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China Hard Landing or Ireland Style Soft Landing?


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As China does look at more meaningful ways to cut taxes, policymakers should keep in mind that China’s fiscal resources are not as limitless as they seem.  Officially, China’s public debt to GDP ratio is somewhere around 20-30% (depending on who’s doing the counting).  This ignores, however, the contingent liabilities that the Chinese government is on the hook for — bailouts for banks, local governments, ministries (like the Ministry of Railways), SOEs, the property sector (in the form of subsidized housing campaigns).  Relative optimists (like the folks at Dragonomics) put China’s actual debt to GDP ratio at 90%.  Pessimists (like Victor Shih, Michael Pettis, or the folks at Fitch) put it at 200% or higher — Greek levels.  Not to say that China shouldn’t be looking at ways to improve its tax system, and reorient its incentives — it should — but it does not have, as many seem to think, money to burn.
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