Alarm bells as China debt hits record level
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. –
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.