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January 2014
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China’s debt boom will have consequence

China’s policy makers are facing a real challenge to deal with the fast and furious debt buidup. The comparison below is alarming.

China debt level compared to crisis countries

(graph courtesy of WSJ)

Now, it looks as if China’s stimulus plan enacted during 2008-09 period may have just postponed the crisis, not killed it. As we say, there is no free lunch.

A recent report from Goldman Sachs shows that most debt, more than 70%, is concentrated in the corporate sector.  My hunch is that most of the leverage in the corporates came from large state-owned enterprises (SOEs), or investment vehicles created by local governments, the so-called LGFVs.  See the chart below (courteys of GS).

china debt break down

 


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