Why is the China credit bubble so alarming when China's debt-to-GDP ratio is actually better than Europe and United States?

When most countries talk about the debt-to-GDP ratio, this is something at the national level. The problem with China is that it has something called the local government financing vehicle (LGFV) which is handled by local governments, and is often outside the control of the central government. This is why in the past few months Beijing ordered an audit; it needed to know what was the cumulative size of the debt created by LGFVs. To learn more about LGFVs, read

The debt to GDP ratio doesn't indicate ability to repay debt. Regardless of debt relative to GDP, if the annual costs of interest payments on debt is greater than what a country can pay, it will run into trouble. The US and much of Europe can afford high debt to GDP ratios because their annual interest payments are a relatively small part of their government budget. Also, fears of a credit bubble in China doesn't seem so much related to concerns about the central government's ability to repay debt as much as local governments and private interests.

It's not an issue of investor confidence.  Rather some of the excess credit that gets issued in China makes its way into the stock market.  When the government starts to tighten credit, then companies start scrambling for cash and start pulling money out of the stock market. I do think that Chinese debt is something to be concerned about, but I don't think its "panic time."  One problem with the financial press is that it's impossible to be "moderately concerned."  Either there's absolutely nothing to worry about, or the world is about to end. One other thing is that the financial press tends to be extremely focused on small irrelevant events and to miss the big picture.  The trouble is that the big picture doesn't sell advertising and neither do "boring stories."  If I write an article on what the Chinese economy is going to be like in five years, then you aren't going to have to reread that article for another month.  Whereas if I talk about how the stock market dropped five points, you have to tune in every day. The other thing is that the financial press loves "alarming stories."  Saying "well local government debt is something to pay attention to, but I think that China will resolve the problem but it will take a few years."  BORING!!!!!  Saying CHINA IS GOING TO BLOW UP!!!!  gets you advertising dollars since people want to see a train wreck.

The problem with China (and some other countries) is the lack of transparency into financial markets.  They are big black boxes with huge control by both the government and the army.  This makes it a very risky investment market.  While Western markets are not completely transparent, the amount of oversight in Western companies have been continuously enhanced.  After the last meltdown (Enron et al) the financial reporting environment was dramatically enhanced again. When organizations and individuals invest in Western companies, they have a pretty good idea what is really going on, and can feel that all investors have a reasonable expectation of "equal access."

I have lived in China for 8 years. Do you seriously trust the official figures?