Why continue working when you are guaranteed a monthly income?” So asks Xu Yongan, a 55-year-old former steelworker from Anhui province and the recipient of an employee buyout. It may seem a bit puzzling that in China, the factory to the world, factory workers are paid to stay home. The solution to the puzzle — as to most puzzles about the Chinese economy — comes down to debt.
The government worries that years of investment-led growth have left the country with a heavy debt burden and lots of excess industrial capacity. It was a government-led effort to shut inefficient factories that led to Mr Xu’s early retirement.
That Chinese debt has grown to dangerous levels is beyond dispute. Non-financial sector debt has gone from $6tn in 2007 to nearly $29tn today, according to data from the Bank of International Settlements. The debt, equivalent to 260 per cent of gross domestic product, has brought with it dramatic declines in credit efficiency. The International Monetary Fund points out that in 2016 it took four units of credit to raise GDP by one unit. A decade ago the ratio was 1.3 to one.