Deflation by itself, sure. Deflation when coupled with huge and increasing debt to service, then you have a crippling problem. That means your ability to pay off your debt gets harder and harder as time goes on, and most of your income goes to service debt principal and interest, and not on actual income growth. China plans a record $411 billion special treatment treasury bond next year, for example, but most if not all of that is just helping local governments pay off debts.

China being the largest creditor doesn't mean much when a lot of their debt is issued to belt and road countries that can never be paid back, and will be written off in the future. It does have a large US debt holdings, but that has shrank from 1.27T (2013) to 772B (2024), and a large part of that being used for cross border transactions.

> Deflation when coupled with huge and increasing debt to service, then you have a crippling problem.

Individuals have a problem. Corporations have a problem. China may or may not have a problem. It depends on how reasonable their bankruptcy laws are. Cleaning out the system of people who aren't using capital effectively is a healthy thing to do.

And I have to say, this idea that we should focus on China's debts and dismiss their credits is suspect. I mean sure, if we ignore all the assets and income streams then they do have a problem. But that isn't reasonable. You can't ignore the strengths to make an argument they are weak.

Let me put it in another way; it's similar to the US banks during 2008, when they appeared to be healthy, holding lots of subprime loans on their books.

If we are talking about China's credit, China has a lot of subprime loans to belt and road countries that have very little income, and lot of subprime loans to their citizens, which recently a scholar reported that 900M of them make less than $400/month.

Possibly. But if the US system was a wealth-producing engine like China's has been in recent history 2008 wouldn't have been all that big a deal. They'd have bounced back in a year or two. Instead in 2008 the US made decisive moves to preserve a system that isn't generating much wealth for the US, and over the course of around 20 years they've arguably managed to give up their position as #1 global economy and are packing stadiums full of people chanting "We love Trump. We love Trump". Looks to me like it is going down in history as a major turning point for the worse.

If China has to take decisive steps to preserve whatever craziness is going on in the mainland, they're going to be preserving a system that has at least 10x-ed their wealth over the last 30 years while producing vast amounts of real capital that has catapulted their living standards up to a much more reasonable standard.

I wouldn't necessarily gamble on China because the system doing well looks unstable and could veer to disaster at any moment the central bureaucracy does something stupid. But we don't have strong evidence of a problem yet. We've got strong evidence they aren't acting like the US, but the US hasn't been setting an inspiring example in decades. As with a lot of economic problems, most of the damage from 2007 was doubling down on failing strategy rather than taking the hint that something needed to change.

And I'm not seeing evidence here that China is broke. They might muck this up, always an option, but they have all the tools they need to succeed in principle.