Analyst Says China’s Credit Bubble Is Unlike Anything In Modern History
China’s shadow banking system is out of control and under mounting stress as borrowers struggle to roll over short-term debts, Fitch Ratings has warned.
The agency said the scale of credit was so extreme that the country would find it very hard to grow its way out of the excesses as in past episodes, implying tougher times ahead.
“The credit-driven growth model is clearly falling apart. This could feed into a massive over-capacity problem, and potentially into a Japanese-style deflation,” said Charlene Chu, the agency’s senior director in Beijing.
Credit Crunch Looms For China
Much of the credit went into expanding industrial capacity or into speculative real-estate projects. The result now is that Chinese property prices are over-inflated and can only be maintained by ever larger infusions of cheap credit, while Chinese industry is only being kept afloat through massive subsidies.
The country has huge over capacity problems across Chinese industry. One academic analysis estimates that subsidies account for 30% of Chinese industrial output. “Most of the companies we looked at would probably be bankrupt without subsidies,” said Usha Haley, one of the paper’s authors, quoted in a recent Financial Times article.
China’s Credit Bubble About to Implode: Fitch Analyst
According to Ambrose Evans-Pritchard of the Telegraph, Fitch analyst Charlene Chu has concluded that China’s growth is fueled by a credit bubble that is unlike anything the modern world has ever seen. This debt bubble is leading to massive overbuilding, Chu says. And when it finally bursts, as debt bubbles always do, China will be looking at a Japan-style depression and deflation.