I came across this article today: Australia warned of future China crisis double whammy
I don't think China's debt is already at unsustainable levels. But I do think the make-up poses a huge risk. Further research uncovered lots of good recent articles on the topic. Here they are ... and why I think they matter:
- The Wall Street Journal reports that China’s non-performing loans are nowhere to be found right now. But they suggest it's only a matter of time before non-performing loans surface and bite down on growth.
- China’s Big State-Owned Banks Saw Rising Defaults, Shrinking Loan Profitability In 2012 and ...
- China Banks Bad Loans Rise for Fifth Quarter as Economy Weakens. The shrinking loan profitability is not necessarily a huge concern. Recent policy changes have led these big banks to offer higher deposit rates so that they may compete for funds. That’s a good thing and is important for long-run rebalancing efforts. But the bad loans profile is discouraging.
- Deflating shadow credit in China. This ties together the risk of increasing credit growth relative to GDP because China's shadow banking system is composed of a large chunk or lending products with severe contagion potential should asset values take an unexpected hit. The article contains the following chart:
- Capital Inflows Spur Premature Tightening Worries While the protracted period of capital outflows last year, due to deteriorating growth expectations, is not a good thing, renewed inflows may bring back a risk that Chinese officials have trouble maintaining China's growth stablization.
With 1) the potential for Chinese inflation to increase in an environment of perpetual global monetary stimulus and renewed capital inflows, plus 2) the potential Cyrpus will spark a downshift in eurozone growth expectations and a crisis in confidence, China's financial system and debt could quickly become an issue that influences financial markets at a very inopportune time.