http://www.abc.net.au/news/2018-08-...war-is-massive-debt-a-bigger-problem/10055192 It's been a few weeks since Donald Trump fired the opening salvo in a trade war with China, slapping tariffs on a range of Chinese-made goods. Beijing retaliated with tariffs of its own — and since then, the rhetoric on both sides has been unrepentant. Much of the focus has been on nervous financial markets, and how the war could affect the fortunes of US farmers and manufacturers — but how do things look from China's side? Is the trade war the biggest threat to China's economy, or does the country have more pressing problems — like its massive debt? Dinny McMahon, who spent a decade covering China for the Wall Street Journal, says while Beijing obviously isn't welcoming the trade war, it's also unlikely to be crippled by it. That's because China's economy is no longer driven by exports. "In 2007, net exports contributed about 9 per cent to China's GDP. Last year we were down to 2 per cent," McMahon says. "Exports aren't the be all and end all for the Chinese economy, as they once were." On top of that, he says, the US only accounted for about 19 per cent of China's exports last year. "So the ... trade conflict with China isn't perhaps the bludgeon that Donald Trump believes that it is, and certainly once would have been," McMahon says. The big problem for China, he says, is that the trade war isn't happening in isolation. Massive debt and ghost cities China is also dealing with a "mountain of debt" racked up at a massive pace over the past decade, as it raced to catch up with the "rich world". "Since 2008 China has been on this massive debt-fuelled binge," McMahon says. "It has been fuelled by debt at every step of the way, to a point where now Chinese debt levels are in excess of those in the United States." The biggest problem isn't the overall levels of debt, McMahon says, but the pace at which it's been accumulated. He says that around a decade ago, China's debt levels were about 160 per cent of the size of its GDP. "Now it's somewhere between 280 and 300 per cent," he says. When other countries have accumulated debt that quickly, they have "almost invariably experienced a financial crisis", McMahon says. "That's like the United States before the sub-prime crisis, or Thailand before the Asian financial crisis," he says. A lot of the money China borrowed from state banks was invested in infrastructure. Some of the construction was useful, but the non-stop building boom also created 'ghost cities'. PHOTO: A ghost city in Baodi District, about 110 kilometres from Beijing. It has around 3,000 completed villas but the occupancy rate is just 10 per cent. (Getty: VCG) It's worth reading the full article to get an idea of the kind of trouble China might be headed into. Australia is probably going to feel the shockwave of any kind of crash in China with how resource heavy our economy is. This is an interesting addition: What could come next in the trade war? So what could China's next move in the trade war be? Ratcheting up its own tariffs could be one option. "But the big problem here is that China exports to the United States far more than the United States exports to China," McMahon says. "So Donald Trump can keep saying we are going to impose more and more tariffs, and China will hit its limits of what it can impose tariffs on before the US gets to its upper limit."