China’s Debt Continues To Surge Despite Warnings & PBOC

China’s mountains of debt in the corporate and household sectors in both official bank reports and through shadow banking continues to grow despite Chinese officials efforts to reign it in as the PBoC warns of a Minsky Moment.

China’s mountains of debt in the corporate and household sectors in both official bank reports and through shadow banking continues to grow despite Chinese officials efforts to reign it in as the PBoC warns of a Minsky Moment. Reuters reports Chinese debt grew at the fastest pace in four years this September.

China Credit Growth

China’s debt potentially overhangs asset prices in a menacing manner. The World Bank has warned about the dangers of shadow banking, Zhou Xiaochuan, governor of the China’s Central Bank (PBOC)  himself warning last month of the risks of a “Minsky moment”. The Minsky moment refers to a sudden collapse in asset prices after long periods of growth from debt or currency pressures. The PBOC has, at least publically been on the front foot, implementing tighter rules and monitoring state firms and local governent banks’ short-term borrowing. The problem is the implementation dates are further down the line and the hidden nature of shadow banking is a great unknown.

China’s overall debt maybe be as much as three times the size of its economy Reuters says. Further to the World Bank concerns the International Monetary Fund said there is a growing risk China will have a banking crisis or sharply slower growth or both.

Meanwhile world stock markets are oblivious and show no signs of fear with Asian stock markets at levels not seen for decades. American stockmarkets are at all time highs and Bitcoin is the latest manis du jour. Who needs Vegas?

At the 19th Communist Party Congress in October Zhou referred to high corporate debt and the fast pace of growth in household lending. Zhou made the right sound bites, pledging to fend off these risks, but with the ready out that it will take some time to bring debt down to more manageable levels. The PBOC masters of the art of central banking doublespeak. 

Reuters analysis of 2,146 China listed firms showed their total debt at the end of September jumped 23 percent from a year ago, the highest pace of growth since 2013. The analysis covered three-fifths of the country’s listed firms, but excluded financials, which have seen the brunt of government de-risking and deleveraging efforts so far. The analysis revealed that debt in the real estate sector multiplied the most over last five years, followed by industrials.


  • Debt servicing costs take up 25% SOEs’ revenues in the last  six months, rising to 27% in Q217, it has pulled back to 24.47% in Q317 as revenues rose.
  • PBoC October’s data on aggregate social financing of corporate bonds showed aggregate financing of corporate bonds stood at 18.34 trillion yuan at the end of October after rising 4.4% from a year ago, the lowest growth rate in two years.
  • The funding gap appears to have been filled by Shadow banking off-balance sheet financing of unkown amounts and costs.
  • Cumulative total social financing, which also includes shadow banking, stood at 172.2 trillion yuan at the end of October Reuters reporteed.
  • Crucially the exact size of shadow banking is unknown. What we do know is speculative buying of commodities and stocks has been manic and in such an environment risk management becomes questionable at best.
  • Total social financing for the month of October 2017 was 1.04 trillion yuan.

The PBoc on Nov. 17 issued sweeping guidelines to tighten rules on asset management business, which the central bank estimates is a $9 trillion market. China’s government debt is at 46.9 percent of GDP the Bank for International Settlements shows. What is unnerving policymakers is the sharp build-up in household debt to pay for speculative assets.

Outstanding household consumer loans have surged close to 30 percent since the middle of last year and reached 30.2 trillion yuan as of October.

Outstanding yuan-denominated property loans amount to 31.1 trillion yuan and individual mortgage loans totals to 21.1 trillion yuan as of the third quarter of 2017, data from the People’s Bank of China showed. Keep in mind that is the official numbers, sans of Shadow levels. The risk is not just a Minsky moment but a serious of Minsky tremors.

What is a Minsky Moment?

  • Economist Hyman Minsky explaination of the bouts of market turmoil that hit Asia in the late 1980s and then the U.S. in 2007.
  • “Minsky Moment” is a collapse in market values following the exhaustion of a credit expansion. Debt can only build up in times of economic growth for so long before a correction Minsky theorised.
  • People’s Bank of China Governor Zhou Xiaochuan warned against a sudden slide in optimism that could trigger such a jolting collapse in asset prices. (since then we have seen even more verticle rises in asset prices.) 

Source: Reuters, BIS, PBoC, Bloomberg

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