I wrote in an earlier post that China’s debt blowout in recent years was a Pig-in-the-Python (in May in fact https://www.chinadream.asia/chinas-credit-growth-the-pig-in-the-python-and-whats-coming-out/) and the situation would resolve itself in time.
In this comprehensive and most recent survey of China’s debt landscape Mr. Yukon Huang, of the Carnegie Endowment for International Peace and the World Bank’s country director for China (1997–2004) together with Mr. Canyon Bosler a junior fellow at the Carnegie Endowment, take fresh stock of the scene and conclude there really isn’t that much to worry about.
[Access the report in full via this link http://carnegieendowment.org/files/china_debt_dilemma.pdf]
Trust company financing is in abeyance, wealth management products (WMPs) are almost unreservedly a good thing, the property market will have to correct but it’ll be small and the sector isn’t really that geared anyhow and overall debt/GDP levels (not high by global standards anyway, chart on P.5) will come down in time.
This is all a far cry from Fitch’s Ms. Charlene Chu’s (now retired, funny that?) alarmist work in recent years that highlighted the rapid growth in a number of areas such as WMPs, LGFV loans and Trust Fund financing always concluding that the end game was likely some form of financial Armageddon (Red Capitalism should also get a nod here as part of the PANTS-ON-FIRE!!! school of analysis popular from around 2010 to now http://www.amazon.com/Red-Capitalism-Financial-Foundation-Extraordinary/dp/1118255100).
The real end game to the credit growth acceleration process triggered by the 2008 stimulus, the authors conclude, is a slow reversion to pre-crisis norms; and China maintains considerable fiscal room if a further push (or most likely a series of push-etts) is required to keep the motor humming. Despite some short term dislocation the pivot of the economy away from the old credit driven model will bring unqualified benefits in time; and who doesn’t want that?
Happy Sunday.