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November 19, 2013

Oh, Boy: Years of Loose Loan Policy in China, Designed to Counter Global Shutdown, Has Resulted in Huge Number of Bad Loans and Possible Coming... Chinese Credit Crisis

This won't be horrible at all.

I have no idea how this impacts the global economy, or if this would cause a disastrous pullback in Chinese purchase of American debt.

But it seems bad.

So, before getting into the article, let me link this:

Okay, that should make you feel pretty good and balance out the below excerpts.

A $6.6 trillion credit binge during the past five years, encouraged by Beijing policy makers as stimulus to combat a global economic slowdown, now threatens to stoke a debt crisis. At stake are trillions of yuan in bank loans that companies producing everything from ships to steel to solar power are struggling to repay as the world’s second-largest economy heads for the weakest annual expansion since 1999.

...

“The 2008 stimulus exacerbated an industrial glut that has been in existence since 2003,” S&P’s Liao said. “We expect the government to take measured steps in a crackdown on overcapacity because they need to weigh the impact on financial stability.”

....

China’s lending spree has created a debt burden similar in magnitude to the one that pushed Asian nations into crisis in the late 1990s, according to Fitch Ratings.

As companies take on more debt, the efficiency of credit use has deteriorated. Since 2009, for every yuan of credit issued, China’s GDP grew by an average 0.4 yuan, while the pre-2009 average was 0.8 yuan, according to Mike Werner, a Hong Kong-based analyst at Sanford C. Bernstein & Co.

“If credit allocation in China improves, the ultimate credit cycle and economy downturn will be mitigated,” Werner wrote in an Oct. 21 note to investors. “However, if China continues to rely on debt to fund its economic growth, the country’s ultimate credit cycle will be more severe.”

Via Monty, aka @aoshqDOOM


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posted by Ace at 02:58 PM

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