Massive Chinese Debt and Why They Are on a Gold Buying Binge!
China’s debt is a staggering $24 trillion, with 247% of annual GDP, an increase of an astounding 465% within a decade. The total borrowing by both the financial and non-financial sectors was only 78% of the GDP in 2007, and has since increased to 309% of GDP.
Some naysayers believe that leverage in China is still far below that of the US in 2007, previous to the financial crisis. However, they neglect to note that the property sector increased 4.5 times between 2000 and 2015 within the top-tier cities. Experience suggests that such a rise is both unsustainable and bubbly. A sharp drop in property prices will increase the leverage to astounding levels, thereby threatening their economy.
Vermeulen discusses various concerns with respect to China, including the huge fiscal deficit; struggling growth; major investors who have raised concerns; and shifting from dollars to gold.
Similar to other developed nations, the Chinese debt has reached bubbly proportions. However, the Chinese are leaning towards gold in a big way, as witnessed in their latest holdings. They know that during the next crisis those nations with a large gold backing will not only survive, but will become prosperous as well.
China will increase their gold reserves even further in the future. Imagine if only a portion of their US treasury holdings are shifted to gold; the yellow metal will go parabolic. Therefore, keep an eye on gold and be prepared to buy it when we reach that last dip before the bull run.