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Actionable news in XIV: VELOCITYSHARES DAILY INVERSE VIX SHORT TERM ETN,

China debt load reaches record high as risk to economy mounts

China’s total debt rose to a record 237 percent of gross domestic product in the first quarter, far above emerging-market counterparts, raising the risk of a financial crisis or a prolonged slowdown in growth, economists warn.

Beijing has turned to massive lending to boost economic growth, bringing total net debt to Rmb163 trillion ($25 trillion) at the end of March, including both domestic and foreign borrowing, according to Financial Times calculations.

Such levels of debt are much higher as a proportion of national income than in other developing economies, although they are comparable to levels in the U.S. and the eurozone.

While the absolute size of China’s debt load is a concern, more worrying is the speed at which it has accumulated — Chinese debt was only 148 percent of GDP at the end of 2007.

“Every major country with a rapid increase in debt has experienced either a financial crisis or a prolonged slowdown in GDP growth,” Ha Jiming, Goldman Sachs chief investment strategist, wrote in a report this year.

The country’s present level of debt, and its increasing links to global financial markets, partly informed the International Monetary Fund’s recent warning that China poses a growing risk to advanced economies.

Economists say it is difficult for any economy to deploy productively such a large amount of capital within a short period, given the limited number of profitable projects available at any given time. With returns spiralling downwards, more loans are at risk of turning sour.

According to data from the Bank for International Settlements for the third quarter last year, emerging markets as a group have much lower levels of debt, at 175...


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