Alarm bells as China debt hits record level

The Myanmar Times - - International Business -

PER­CENT 30 China’s credit-to-GDP gap that analysits say poses an im­mi­nent bank­ing risk

A KEY gauge of China’s debt has reached its high­est level on record, set­ting off alarm bells of im­mi­nent risk to the bank­ing sys­tem, a Swiss bank­ing watch­dog re­ported.

China’s credit-to-GDP gap reached 30.1 per­cent in the first quar­ter of 2016, its high­est level ever and far above the 10pc level as­so­ci­ated with bank­ing risks, the Bank for In­ter­na­tional Set­tle­ments (BIS) said in a quar­terly re­port.

It gave China a red sig­nal, a level it said was in­tended to in­di­cate the pos­si­bil­ity of a fi­nan­cial cri­sis in the three years ahead.

China is grap­pling with a tough eco­nomic tran­si­tion as Bei­jing seeks to boost slug­gish growth with an in­fu­sion of cheap credit.

But an­a­lysts have warned that a debt-fu­elled re­bound might be short­lived, and that bal­loon­ing bor­row­ings risk spark­ing a fi­nan­cial cri­sis as bad loans and bond de­faults in­crease.

The BIS put China’s debt level for the pe­riod above all coun­tries in the sur­vey, which cov­ered 41 nations in­clud­ing the US, Greece and the UK.

The BIS early-warn­ing in­di­ca­tors are in­tended to cap­ture “fi­nan­cial over­heat­ing and po­ten­tial fi­nan­cial dis­tress” in the medium term, it said, and to high­light that rapid credit growth could “sow the seeds” for fu­ture crises.

China’s to­tal debt hit 168.48 tril­lion yuan (US$25 tril­lion) at the end of last year, equiv­a­lent to 249pc of na­tional GDP, the China Academy of So­cial Sciences has es­ti­mated.

Last month all of China’s “Big Four” state-owned banks re­ported mount­ing bad loans in the first half of the year, and ear­lier in the sum­mer an of­fi­cial with China’s bank­ing reg­u­la­tor said that banks had writ­ten off more than $300 bil­lion of bad loans in the past three years.

But au­thor­i­ties have un­veiled a set of poli­cies in­tended to tackle the prob­lem of sour­ing loans, in­clud­ing debt-for-equity swaps, and an­a­lysts say China’s vast for­eign-ex­change re­serves and con­trol over the bank­ing sys­tem could help cush­ion the econ­omy from fi­nan­cial crises. –

Photo: EPA

The sun rises over the fi­nan­cial dis­trict of Pudong in Shang­hai. China’s credit-to-GDP gap reached 30.1 per­cent in the first quar­ter of 2016, its high­est level ever.

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