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Thursday, January 14, 2016

China's Mountain Debt a Bigger Economic Concern

If you think that China's stock market is scary, it's time to look at its' mountain debt. 

$28 trillion of credit bubble with the economy growing at its' slowest pace in 25 years, I wonder....JUST HOW BIG THE PROBLEM REALLY IS.

And China's inconsistent policy and direction under President Xi Jinping and Premier Li Keqiang...question marks are everywhere...whether they are for financial sector reform and shifting their $10 trillion-plus economy from one powered by investment and exports to one more focused on consumption and services or not.

We all know what happened as 2016 kick off with one of the greatest nightmare in the history of the stock market. And the yuan's crazy to talk about it. But the biggest problem perhaps is the question of how the Chinese officials will keep the economy growing to repay past obligations, without resorting to a fresh pick-up in debt to fund more stimulus. It was China’s reliance on credit-fueled growth in the wake of the 2008 global financial crisis that resulted in one of the biggest debt expansions in recent history, and today’s hangover.

A report on Tuesday forecast shows China's 2015 expansion slowed to 6.9%, the slowest pace since 1990, and like all other analysts, I believe the 6.9% is not that all bad. But the real problem to me is what about the "mountain debt" that was supercharged by spending on infrastructure and housing, that delivered average economic growth of 10 percent over the past 30 years. Government, corporate, and household borrowing totaled $28 trillion as of mid-2014, or about 282 percent of the country’s GDP at the time, according to McKinsey & Co. 

At the end of the day, an economy fueled by debt cannot last. The deleveraging process will happen eventually.

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