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Comment by bokonist | Hacker News Reader

Debt is only ever a problem for a country if a) it is trying to maintain a fixed exchange rate or b) the debt is denominated in gold or a foreign currency. Neither of these is true for China, so it's level of debt is not a problem. In fact, under a fiat currency system the entire concept of "debt" is a misnomer for sovereigns. Sovereign debt is must better thought of as interest bearing currency.

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> Debt is only ever a problem for a country ...

What about interest payments? What about the risk of having the debt called in, or the risk of using up all of one's credit?

This is why China is going through all of the effort to keep the debt hidden. One really big problem with state-backed business is that the credit-worthiness of the business is fundamentally tied to it's backer.

If your doing business in China, massive debt heightens the risk that you simply won't be paid. The real risk here is ever tightening controls on Chinese borrowing and investment dollars flowing in. That would have a crippling effect on overall growth.

> a) it is trying to maintain a fixed exchange rate

I thought China is trying to maintain an exchange rate (or rate "band") with the USD.

Sort of, but China's main concern is to prevent its currency from appreciating too much. The danger of too much debt is the opposite problem - too much debt forces a devaluation. So again, the level of debt is not a problem for China.

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