BIS says China could face debt crisis
September 26, 2016 Category Finance, Weekly
China’s banking sector could be facing an imminent “debt crisis,” the Bank for International Settlements (BIS) has warned. China’s credit-to-GDP gap reached 30.1% in the first quarter of 2016, its highest level ever and far above the 10% level thought to present a risk to a country’s banking system, the Switzerland-based bank said in a quarterly report. The gauge measures the difference between a country’s current credit-to-GDP ratio and its long-term trend. The BIS gave China a red signal: a warning that it could face a “financial crisis” in the next three years. China’s total debt hit CNY168.48 trillion at the end of last year, equivalent to 249% of national GDP, the China Academy of Social Sciences (CASS) has estimated. Because China is a key driver of world growth, a crisis in its banking sector could have catastrophic implications around the world, with the global economy still struggling to recover from the 2008 financial crisis, analysts have warned. China’s credit-to-GDP gap for the period was well above all other countries in the survey, which covered 43 economies including the United States, Greece and Britain. China’s “Big Four” state-owned banks reported mounting bad loans in the first half of the year. Analysts say the country’s vast foreign-exchange reserves and control over the banking system could help cushion the economy from financial crises. Because most potential bad Chinese debt is held by state-owned companies and banks, the government has control over the pace of recognizing and dealing with bad loans, Andy Rothman of Matthews Asia said, as reported by the Shanghai Daily.
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