Aug 12, 2019

Worry grows about China's falling currency and rising dollar debt

Data: Institute of International Finance; Chart: Axios Visuals

The Chinese government had put plans in place to reduce the high levels of debt in the country's economy this year, but the negative economic effects of the trade war have put those plans on the back burner and companies are again levering up, in large part with dollar-denominated debt.

Why it matters: As the yuan weakens, debts held in dollars get more expensive. That could pose a major problem for China should the economy continue to slow. It would also mean problems for the rest of the world, as China is the planet's No. 1 trading nation.

  • The big picture: Having shown that they are unafraid to let the yuan weaken past 7 to 1 with the dollar, Chinese authorities are raising concerns about many companies' indebtedness.

Watch this space: Dollar-denominated debt held by Chinese firms is now more than $1.5 trillion, 20% higher than it was in 2015, data from the Institute of International Finance shows.

  • The distribution of dollar debt has fallen to around 50% of total corporate debt from 70% in 2015, but banks and other financial institutions are now more exposed to currency risk because of their increased borrowing in dollars.

Go deeper: Chinese yuan weakens past key milestone as trade war heats back up

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Recession fears are making companies more responsible

Photo: Getty Images

Fears of a global recession are scaring U.S. companies, pushing them to use excess capital to reduce debt and add to cash reserves, rather than levering up and making risky bets as they have in the past.

Why it matters: This newfound corporate responsibility, motivated largely by fear, could help insulate the economy from another damaging recession.

Go deeperArrowSep 5, 2019

Trade war: Trump says China wants to restart negotiations

Photo: Nicholas Kamm/AFP/Getty Images

President Trump said on the sidelines of the G7 summit in Biarritz, France, Monday that China has contacted his administration to request for trade talks to resume.

Go deeperArrowUpdated Aug 26, 2019

Scammers target student debt relief as loan defaults surge to $90 billion

Students earning degrees at Pasadena City College participate in the graduation ceremony. Photo: Robyn Beck/AFP/Getty Images

Companies are increasingly targeting student debt borrowers by selling scams that promise to help reduce or forgive loans, the Wall Street Journal reports.

Why it matters: A record $89.2 billion worth of student loans had been defaulted on at the end of June, while 11% of the $1.48 trillion in total outstanding loans was "at least 90 days behind on repayments," according to New York Federal Reserve data. The companies identified by the WSJ — some of which are legally allowed to operate — have been flagged by regulators that warn the services they offer are usually free. Other companies are fraudulent, regulators say.

Go deeperArrowAug 26, 2019