Mindful
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China’s Debt Bomb.
It’s been called a mountain, a horror movie, a bomb and a treadmill to hell. To doomsayers, China's $34 trillion pile of public and private debt is an explosive threat to the global economy. Or maybe it's just a manageable byproduct of the boom that created the world’s second-biggest economy. Either way, the buildup has been breathtaking, with borrowing having quadrupled in seven years by one estimate. (China doesn't give a complete tally). President Xi Jinping has taken note, pushing authorities to announce a slew of measures that target risks lurking in the financial system. The challenge is how to wean the country off its debt drip without intensifying an economic slowdown. Since China is a key driver of global growth, it's a matter of concern for everybody.
The Situation
Even with the government focus on deleveraging, Chinese borrowing rose 14 percent in 2017, ballooning to 266 percent of gross domestic product, from 162 percent in 2008. That growth outpaced the U.K. and U.S. in the decade before the financial crisis. However, the de-risking campaign has begun to bite: Once-rare corporate debt defaults ran at a record pace in 2018; China’s huge conglomerates were reined in following debt-fueled acquisition sprees; the government is targeting spending cuts in its budget; and sweeping rules were introduced to tackle shadow banking, a $10 trillion network of unregulated lending and risky investment products. There’s also been a focus on curbing loans to bloated state-owned enterprises, a task that Xi termed “the priority of priorities.” (More than half of China’s debt is held by state and private corporations.) The upshot is that the cycle of expanding credit that began in 2004 has ended, according to S&P Global Ratings. Even so, the government remains willing to change tack when the
economy is threatened: A brewing trade war with the U.S., coinciding with those moves to curb leverage and shadow
banking, began to make it harder for companies to get funding in 2018. That prompted the authorities to introduce
monetary-easing measures, such as freeing up banks to make more loans to smaller businesses.
Bloomberg - Are you a robot?
It’s been called a mountain, a horror movie, a bomb and a treadmill to hell. To doomsayers, China's $34 trillion pile of public and private debt is an explosive threat to the global economy. Or maybe it's just a manageable byproduct of the boom that created the world’s second-biggest economy. Either way, the buildup has been breathtaking, with borrowing having quadrupled in seven years by one estimate. (China doesn't give a complete tally). President Xi Jinping has taken note, pushing authorities to announce a slew of measures that target risks lurking in the financial system. The challenge is how to wean the country off its debt drip without intensifying an economic slowdown. Since China is a key driver of global growth, it's a matter of concern for everybody.
The Situation
Even with the government focus on deleveraging, Chinese borrowing rose 14 percent in 2017, ballooning to 266 percent of gross domestic product, from 162 percent in 2008. That growth outpaced the U.K. and U.S. in the decade before the financial crisis. However, the de-risking campaign has begun to bite: Once-rare corporate debt defaults ran at a record pace in 2018; China’s huge conglomerates were reined in following debt-fueled acquisition sprees; the government is targeting spending cuts in its budget; and sweeping rules were introduced to tackle shadow banking, a $10 trillion network of unregulated lending and risky investment products. There’s also been a focus on curbing loans to bloated state-owned enterprises, a task that Xi termed “the priority of priorities.” (More than half of China’s debt is held by state and private corporations.) The upshot is that the cycle of expanding credit that began in 2004 has ended, according to S&P Global Ratings. Even so, the government remains willing to change tack when the
economy is threatened: A brewing trade war with the U.S., coinciding with those moves to curb leverage and shadow
banking, began to make it harder for companies to get funding in 2018. That prompted the authorities to introduce
monetary-easing measures, such as freeing up banks to make more loans to smaller businesses.
Bloomberg - Are you a robot?
