Tuesday, June 07, 2016

Goldman Sachs: China's Debt Is 
Far Greater Than Anyone Thought
"Worryingly, our implied credit metric indicates that the trend of China’s leverage has probably deteriorated faster than we previously thought, even though we had already expected the ratio to continue rising in the next few years. Compared to our previous estimates, the experience in 2015 suggests that the economy’s dependence on credit has deepened significantly and that it likely needs sizeable flow of credit on a persistent basis to maintain a stable level of growth. The chart below shows how much more unfavorable our baseline debt/GDP projection is now after incorporating our implied credit metric for 2015 vs. what it was based on data only until 2014. Such a scale of deterioration certainly increases our concerns about China’s underlying credit problems and sustainability risk. The possibility that there is such a large amount of shadow lending going on in the system that is not captured in official statistics also points to regulatory gap, and underscores the lack of visibility on where potential financial stress points may lie and how a possible contagion may play out."
link here to the reference

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