China’s markets could CRASH and send shockwaves around the world, economists warn

Saturday, July 1, 2017
By Paul Martin

CHINA is to set suffer severe financial ructions that could reverberate across the world because its debt pile has grown astronomically fast, economists have warned.

Sat, Jul 1, 2017

The planet’s second largest economy is riddled with bad debt, where borrowing to pay the interest on previous loans has been rife, according to Freya Beamish, chief Asia economist at Pantheon Macroeconomics.

If history is any teacher, the growth rate of credit and debt in China is pointing to a very ominous outlook for the economy.

Ms Beamish said: “Historically, the rate of change of debt has been a better predictor of systemic banking crisis than any magical level over which countries cross only at their peril.”

China’s debt is an eye-watering 257 per cent of its economy, growing from around 150 per cent over the past 10 years.

By comparison, Britain’s public debt sector is sitting at around 86.5 per cent of GDP.

Gareth Leather and Daniel Christen from Capital Economics wrote in a recent note to investors: “In our view, the sharp rise in private sector credit in Emerging Asia since the global financial crisis is a major concern.

“As a rule of thumb, an increase in the ratio of private sector debt-to-GDP of more than 30 per cent-pts over a decade acts as a signal of distress.

“On this basis, several economies are vulnerable.

“Given its size, China poses the biggest threat.

“We doubt that a full-scale banking crisis and sharp economic slowdown is imminent, but credit growth over the past decade here is unprecedented, and unsustainable by global historical standards.

“Large-scale defaults would probably lead to a wider economic and financial crisis in the region.”

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