China: Must manage debt to avoid a financial crisis – NAB

Gerard Burg, Senior Economist at NAB, notes that China’s debt – mostly held by the corporate sector – has been growing rapidly since 2012, and the total is now comparable to the highest debt advanced economies.

Key Quotes

“Addressing debt concerns in coming years will be critical to avoiding a financial crisis over the medium term.

The majority of the debt sits in China’s corporate sector, particularly State-Owned Enterprises (SOEs), which effectively ties the strategies of authorities in managing the debt to the broader challenges of SOE reform.

Warnings from the BIS and IMF have elevated concerns around China’s corporate debt levels. While the nature of China’s financial markets provides authorities with some additional time to address the issue, urgent reform to SOEs and increased competition across the economy will be necessary to avoid a medium term financial crisis.”