In terms of local debt, ah, I think 
the problem just keeps getting worse.
I think there is a very deep contradiction,
basically in policies
that are laid out by the Chinese government, and this is very comon, as you know, in the Chinese government.
On the one hand they would like to reach 
these pretty aggressive GDP growth targets,
which are still six, six and a half percent every year.
On the other hand the party recently has made a big deal about controlling the level of local debt.
But clearly, you know, because a lot of investment in China is undertaken by the government,
especially the local government,
and local governments around China, 
most local governments in China run budget deficits,
they necessarily will have to borrow money
from some financial institutions in order to reach these investment targets,
which allow them to meet the growth targets,
which are ultimately set forth by the entral government.
So, as long as that doesn't change
the debt will keep on increasing.
I haven't done a re-estimate of the amount of local debt recently,
but my colleagues at Qinghua University Bai Chong'en
and also my colleague Michael Song 
at Chinese University of Hong Kong,
and I think, someone at the University of Chicago 
had a paper recently estimating
the total amount of local debt in China, and it was a very high figure. It was 45 Trillion RMB,
which is well over 70% of the nominal GDP in China,
and if you were to add that to the official central government debt,
as well as, there is now a municipal bonds 
that the central government guarantees,
which are then issued by the local governments.
If you add the 15, 16 trillion outstanding in municipal bonds to the central government debt
to this 45 trillion figure,
you get a total Chinese governmental debt of a 100% of GDP, close to a 100% of GDP.
That's quite high,
you know, by all these sort of alarming thresholds
that IMF and other organizations have set forth.
That is a big question,
I think not triggered by local debt,
I mean, I think, there could be some financial problems 
in the next year or two,
but if that were to happen it would be triggered 
by some external thing, actually.
This is a slightly separate topic, but China's
external debt is also quite substantial,
and if you count the money that Chinese companies or banks
have borrowed in offshore locations, like Hong Kong, 
which of course is part of China,
then Chinese external debt may have reached over 2 trillion US dollars.
So that for me is the more likely channel
for financial panic of some sort in Greater China
than domestic, domestically, you know, at the end of the day the PBLC, the Central Bank can just print money
and roll over a lot of local debt or SOE debt
or even if, you know, some shadow banking thing,
you know, wealth management product or something like that, were to,
default, which actually happened in a few instances already,
the Central Bank can come in and just bail people out.
We've seen that happen a couple of times already,
so we know they have the capacity to do that.
So, yeah, as you well know, I mean, this is how part of China pursues industrial policies
is to just poor huge amounts of money into it,
using these state owned financial institutions,
like the big four state banks, and also policy banks especially.
I think, it does work, and it doesn't work.
So, in the sense, it does work in that they
do get some things done,
and the capacity gets built up, right so, 
solar panels is the one case that I know a little bit.
You know, China relatively quickly became
the world's largest producer of solar panels,
and, you know, basically overwhelmed the entire market.
Some people say even, it was very beneficial to the world because they drove down the costs of solar power,
made its use lot more economical for the rest of the world
than therefor reduce overall greenhouse emissions.
But it is also very problematic in that every time 
the Chinese government decides on some goal,
you know some objective, weather it be electric cars, solar energy or handsets,
then pretty much all kinds of companies begin to do that,
because they know this is how to obtain state subsidies, 
and also cheap financing,
and, you know, recently the big hot thing is robotics, industrial robotics,
so you have, you know former toy makers,
you know, these, low tech companies making toys
all the sudden become robotic companies
trying to get Chinese government loans, trying to get NDRC approval of their investment and so forth.
A lot of corruption obviously ensues from this process, 
and a lot of money is wasted.
And this is part of the reason why non-performing
loans ration is so high in China,
is because this kind of industrial policy just attracts
really bad investment 
and sort of, investors with very dubious intentions.
There are some very good companies, and they
are using the money wisely or effectively,
but then there are also many others which are not doing that.
But I think for the Chinese government,
actually,  I think I heard someone in the Chinese government tell me this,
that for them efficiency is not important,
like all socialist economies, achieving the objective that is important.
So if they are able to achieve the objective of, you know, 
dominating the robotics market
or dominating the handset market or the solar panel market,
for them that is a big achievement and even
if there is a lot of debt, 
bad debt, that's leftover from that,
for them it's kind of ok,
but the problem is that when you keep
doing this the amount of bad debt keeps on rising
and it builds up in the system,
and so now especially with growth no longer, you know, 
growing at 10, 15 percent a year,
it's at 6 percent perhaps even slower in the future,
the amount of debt will always be bigger than your GDP growth.
So, this whole notion that, you know, 
eventually we will repay this debt,
because we have growth, that will just not happen, 
this is mathematically impossible.
So total credit in China now is 300% of GDP,
by my calculation,
and even by more modest calculation it is 250% of GDP.
In order to have 6% growth, the credit has
to grow by 10%, let's just say 10% a year.
That's the monetary policy target of the PBLC,
10% of 250% is 25% of GDP,
and GDP now is growing 10% percent a year,
if you net out inflation it becomes 6%, let's say 10%, 
actually it is more like 8% in 2016.
But let's say 10%, you have credit growing at 25% of GDP,
GDP growing at 10% a year,
you will never catch up.
Right, so, I think a lot of people are kind
of naively optimistic about,
you know, how growth will eventually help China 
repay all of that debt.
Growth will never do that, only inflation can do it.
I am very, I mean, pessimistic about the prospects
of real reform, the way that we understand it,
but I think things will change, obviously,
reform just means something is changing, things will change,
but, if by reform you mean, you know, allowing the market
to play a greater role, which of course is also 
what th 3rd plenum stated is the objective,
I actually don't think that will happen in the near future
after the 19th party congress.
I think there are two reasons for that, one is, I think,
you know, obviously, none of us can read the mind of Xi Jinping, but if you read a lot of his writings
a lot of speeches he has given recently, especially after he became secretary general of the Party,
he never once said that the socialist economy
should ever be abandoned.
If anything, I think, if you read his speeches,
he aims to strengthen the socialist economy,
strengthen the role of state capital, even
in the most recent central finance conference,
that just took place,
you know, the FT had a headline that says,
you know, there is going to be financial crackdowns on the state sector.
I don't really see it that way at all, because
the working, all the wording
said at the conference during his speech was that
there has to be less leveraging for the state economy.
But that could mean, so the FT read it 
that banks would just not lend money
or provide any kind of capital any more to SOEs, 
and they are going
to go under, you know, something like that.
But the way I read it is, somebody else,
most likely the banks or other financial institutions will have to take
on the debt of the SOEs,
so that they are not as levered as before,
so that they can do more.
And, you know, these debt solutions for the SOEs is not to
force them to go into bankruptcy,
but to have someone else take all the burden, 
sometimes even workers, you know, from them,
so that they can get  even bigger,
and, you know, play a bigger role in the economy, 
and invest in even more sectors.
And drive out private competition even more.
And of course SOEs have been doing that 
to foreign competitions for a number of years,
as China, you know, rises in terms 
of the quality in technology,
I think this is very important to Germany also, 
because, you know, Germany
traditionally obviously has a very strong role in high-end industrial outputs,
but as the quality of Chinese industrial goods,
like excavators and so on and so forth,
increases and as they buy or sometimes steal technology from other countries,
these massive subsidies of Chinese companies, 
especially the state sector,
is really going to have a direct impact on
on German companies and the German economy potentially.
