China Accounts For Half Of All Global Debt Created Since 2005: Here Are The Implications
Over three years ago, in November 2013, when the world’s attention was still largely focused on what the “Big 4” central banks would do with QE and/or interest rates, we wrote an article showing in one simple chart “How In Five Short Years, China Humiliated The World’s Central Banks“, and noted that in just the brief period since the financial crisis “Chinese bank assets (and by implication liabilities) have grown by an astounding $15 trillion, bringing the total to over $24 trillion. In other words, China has expanded its financial balance sheet by 50% more than the assets of all global central banks combined.”
Fast forward to today, when not only is China’s debt the biggest wildcard for the stability of the global financial system (recall last week UBS observated that for the first time in years, the global credit impulse had tumbled to negative largely as a result of a slowdown in Chinese credit creation), but even central banks openly admit that China’s relentless debt-issuance spree is a major risk factor for global financial stability. One such bank is the NY Fed, which earlier today issued a report titled “China’s Continuing Credit Boom“, which while containing nothing that regular readers don’t already know, provides a handy snapshot of the full extent of China’s debt problems.
Here are some of the higlights:
- Debt in China has increased dramatically in recent years, accounting for roughly one-half of all new credit created globally since 2005.
- The country’s share of total global credit is nearly 25 percent, up from 5 percent ten years ago. By some measures (as documented below), China’s credit boom has reached the point where countries typically encounter financial stress, which could spill over to international markets given the size of the Chinese economy.
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