Events

Chinese Credit Bubble

Chinese Credit Bubble

Full Name
Chinese Credit Bubble
Event Type
Location

Rapid increase in chinese bank and credit assets.

Locations

China

Mentioned by the Following

Event Types

Bubble

  • Chinese banks had assets of ~40Trillion at the end of 2017
  • This is close to 50% of world GDP
  • No other country has come to this high level
  • Suggests that lending in China as not been very conservative
    • Much of the debt has funded "ghost cities", "bridges to nowhere" and other non-performing infrastructure projects
    • Created short term growth and jobs, but can't be repaid
  • A significant portion of Chinese Debt is denominated in US dollars (becomes harder to pay as the Chinese Yuan Falls against the Dollar)
  • Many state-owned-enterprises owe each other in an unsustainable chain that will be hard to repay
  • Wealth Management Products (WMP) are invested in troubled real estate deals
  • Significant amount (trillions) of off-book debt from local governments
  • Considered by some to be a Ponzi Scheme
    • The debt can't be repaid, rolled over or refinanced without the help of the government
    • The debt hasn't generated enough income/value to pay for itself
  • There are concerns that once this bubble breaks, it will also impact other markets
  • Large corporations and state governments began to default in 2018


Attempts To Control

  • President Xi Jinping tried a deleveraging program in 2017, but it was too hard to swallow. 
  • The economy began to cool too quickly
  • Instead more debt fueled projects and growth followed in 2018