The warning from the Bank of International Settlements (BIS) certainly sounds dire, and it should be taken seriously – but don’t forget China’s banking system is still relatively well protected because it is largely state controlled.
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Rapid increases in the credit-to-GDP gap indicate excessive credit growth, putting China in danger of a severe banking crisis, explained Bloomberg News.
It gave China a red signal, a level it said was meant to indicate the possibility of a financial crisis in the three years ahead.
Because the Chinese banking system is nearly completely controlled by the government, some analysts argue that China can simply bail out its banking sector before a serious banking crisis occurs.
The effect was especially pronounced for lending to advanced economies outside the euro area, the Basel-based BIS said Sunday. It did not explicitly say that stock and bond markets were waiting to burst.
Since the global financial crisis, China has sought to curb downward trends and maintain growth through corporate borrowing and debt.
Central banks’ supportive monetary policy together with global growth showing some signs of recovering helped restore investor confidence in markets, yet “questions about their underlying resilience remain”, the BIS said.
A simmering banking crisis is unlikely to do anything to deter those Chinese who prefer to keep their cash offshore.
Borio said there had been a “distinctly mixed feel” to the recent rise of share markets, with “more push than pull, more frustration than joy”.
London is also the world’s biggest currency trading center, accounting for some 37 percent of the $5.1 trillion average daily volume, according to the BIS.
The stock of dollar loans to non-US borrowers around the world fell 0.7 per cent from the same period a year ago, although a 4 per cent increase in credit via bond markets lifted overall dollar-based credit to $7.9 trillion at the end of March.
The problems facing Chinese authorities are being compounded by low global growth and the apparent slowing of the U.S. economy.
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Warning sign on China debt reaches record level: report was posted in Business of TheNews International – https://www.thenews.com.pk on September 20, 2016 and was last updated on September 20, 2016. How much worse are they than the reported numbers?
