Feb 10, 2017

The latest fuel for China's debt bubble

Since the end of the debt-fueled financial crisis, China has quietly embarked on a debt binge of its own.

Source: Bank of International Settlements

The Wall Street Journal reports on the latest trend in the Chinese economy: non-bank corporations lending other firms' money. This is after China has finally begun to clamp down on easy bank lending, making it difficult for many companies to borrow to grow or keep their operations afloat.

While the American financial crisis began with a real estate debt bubble, the Chinese run-up has been concentrated in the corporate sector as the Chinese government stimulated its domestic economy by instituting a policy of easy credit to its massive domestic infrastructure and export industries.

Why it matters: That large, cash-rich companies would rather lend their money to other companies than invest in their own operations is a warning sign in its own right. These statistics are the strongest evidence that China is headed for a period of significantly lower growth, as its economy is weighed down by unproductive debt.

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