Published by ABC News, the National Australia Bank (NAB) chief economist Alan Oster is very concerned about China’s ballooning debt, currently at 250 per cent of its GDP. The National Australia Bank has warned that if China does not pull back from its debt indulgence, it will drag Australia through the economic mud and trigger another global financial crisis. China's debt is currently 250 per cent of its GDP, or in layman's terms, it is up to its eyeballs in credit debt. But something even more sinister is at play. Research from the NAB and the Bank for International Settlements show China's debt load is growing at 30 per cent per annum.
China must allow its economy to slow otherwise a "disorderly deleveraging" could trigger contagion in emerging markets and dent asset prices in advanced economies, according to a new report by the International Monetary Fund. These latest warnings from the IMF follow Treasurer Scott Morrison cautioning that Australia was exposed to China's high debt levels and lack of reform, in a speech in August. He said this could lead to a "credit crunch" in China and a sharp slowdown in growth which would flow onto Australia. At the top of the IMF's list of issues requiring attention was a plea for Beijing to give up on "unsustainably high growth targets" by keeping "credit growth in check".
China warned to rein in growing mountain of debt or risk triggering another global financial crisis. The latest official global economic data shows China is sitting on a debt time-bomb, and the list of countries and global financial institutions that have pinned their hopes on a strong Chinese economy is impressive. Australia is largely completely dependent on a healthy Chinese economy. British banks alone have $695 billion worth of lending and business in China, including Hong Kong, meaning about 16 per cent of all foreign assets are held by UK banks. Mr Oster warns if China does not pull back from its debt binge, it will drag Australia and China's major trading partners through the economic mud.
China’s total debt was more than double its gross domestic product in 2015, a government economist has said, warning that debt linkages between the state and industry could be “fatal” for the world’s second largest economy. The country’s debt has ballooned to almost 250% of GDP thanks to Beijing’s repeated use of cheap credit to stimulate slowing growth, unleashing a massive, debt-fuelled spending binge. While the stimulus may help the country post better growth numbers in the near term, analysts say the rebound might be short-lived. China’s borrowings hit 168.48 trillion yuan ($25.6 trillion) at the end of last year, equivalent to 249% of economic output, Li Yang, a senior researcher with the leading government think-tank the China Academy of Social Sciences (CASS), has told reporters.
OVERCOMMITTED home loan customers are worried about meeting their repayments despite interest rates being at record lows and many concede they’ve taken on too much debt. Borrowers admit they’ve increased their debt levels so they can cover hefty expenses including holidays, school fees and household goods. And their concerns deepen — one in five people are worried how they will cope paying off their debts once interest rates eventually rise.
A slowdown in China is the greatest threat to the global economy, Kenneth Rogoff, a professor of economics at Harvard University, told the BBC in an interview published on Monday. "I think the economy is slowing down much more than the official figures show," Rogoff, who is a former chief economist of the International Monetary Fund (IMF), told the U.K. broadcaster. He added that China is going through a "big political revolution," hinting at Beijing's high-profile campaign to tackle corruption and transition its economy to being more consumer led. "If you want to look at a part of the world that has a debt problem, look at China. They've seen credit fueled growth and these things don't go on forever," he said.
China is shaping up as favourite to fall victim to a major banking crisis, according to a dire and frightening warning from the Bank for International Settlements.The scale of China's debt is enough to create major markets shock around the world. Such an event would put Australia's economy directly in the firing line. Making this view all the more formidable is the fact that the Bank for International Settlements which looks after the world's central banks and makes the rules on the strength of banks, has based its concerns on a fairly straightforward measure of the country's debt relative to the size of the economy. Thus there are two problems. The first is that the economy's growth is slowing and the related problem is that the government has taken on debt in order to stimulate it. Chinese have become addicted to debt and weaning off this stimulus will be painful.
A warning indicator for banking stress rose to a record in China in the first quarter, underscoring risks to the nation and the world from a rapid build-up of Chinese corporate debt. China’s credit-to-gross domestic product “gap” stood at 30.1 percent, the highest for the nation in data stretching back to 1995, according to the Basel-based Bank for International Settlements. Readings above 10 percent signal elevated risks of banking strains, according to the BIS, which released the latest data on Sunday. The gap is the difference between the credit-to-GDP ratio and its long-term trend. A blow-out in the number can signal that credit growth is excessive and a financial bust may be looming. Some analysts argue that China will need to recapitalise its banks in coming years because of bad loans that may be higher than the official numbers. At the same time, the state’s control of the financial system and limited levels of overseas debt may mitigate against the risk of a banking crisis.
China’s breakneck growth fueled an iron ore boom in Western Australia. Now, Chinese investors are fleeing a cooling economy by investing in Australian homes. The bust came just as hard and just as fast. China’s economic slowdown left too many mines to feed too many dormant Chinese steel mills. Construction of new mines stopped. Port Hedland’s economy slumped. Mr. Meadowcroft lost his job, then lost a second job. Like thousands of others, he went back home.
Chinese Capital outflow is fuelling the Australian property bubble The topic ‘CHINA Capital Flight’ has not received (in my opinion) an ample share of the headlines and I believe is a significant contributor to the Australian property bubble. Domestically, the matrix of topics that has placed the Australian property bubble perilously out of control includes apartment oversupply, record capital growth, illegal foreign investment, FIRB fraud, Loan fraud and VOI fraud, just to name a few. But lets take a minute to speculate what external influences changed our delicate economic balance and where or how did it all begin. Reported by the Institute of International Finance, the CHINA Capital Flight crisis was approximately $700 billion in 2015.
Ballooning government and household debt has failed to produce a meaningful economic growth dividend and is increasing risks to the economy, according to damning research by Morgan Stanley that lends support to Labor's push to dump negative gearing. Calculations by the investment bank show Australia last year used up more than $9 of debt for every $1 of extra gross domestic product, which is around three times more than the debt needed to produce the same amount of growth in the US economy. Even more concerning, according to Morgan Stanley, is the comparison to China – where a so-called "debt productivity ratio" of $6 has stoked deep-seated global financial market fears this year about the sustainability of the world's second-largest economy.
Financial markets always panic in the face of uncertainty. It’s the thing they do best. And most profitably, for those living off the markets themselves. Churn is chief. It was natural that they had a fun time following Brexit. And the Australian election. Less comprehensible or forgivable, has been the surprise evinced by big corporates over both events. They naturally favour the status quo, but are often reluctant to argue publicly and effectively for it — sometimes out of a combination of complacency and hubris. The canny Hong Kong-based broadcaster and entrepreneur Stephen Vines writes in the South China Morning Post about the response to Brexit “from major companies that pride themselves on having business competence and political intelligence, yet were seemingly taken unawares by the consequences of the vote.” He says: “They must have assumed that a consensus of the powerful should ensure that the great unwashed would follow their advice,” albeit tentatively and ineffectively proffered.
When a country’s total debt – public plus private – approaches 250 per cent of GDP, financial crises seem to take root. This was the case for Japan in 1989, the United States in 2007, and for many European countries in 2009. China and Hong Kong, Australia, Canada, Singapore, South Korea and a number of other countries have now chalked up similar levels of debt relative to the size of their economies. When debt levels are low, governments, households and corporations can live beyond their means by borrowing money. Debt-fuelled spending in excess of income expands GDP as spending by one is income for another. As debt levels rise, however, the nature of borrowing changes. At higher levels of debt, more money goes towards refinancing existing debt instead of spending. In turn, growth slows. When total debt levels become too high, either borrower or lender eventually becomes nervous and turns off the tap, causing a loss of confidence. This then threatens to send the debt-fuelled economic expansion into a reverse spiral.