Oh dear …. this probably won’t end well

April 18, 2016

I have been too busy to write much recently but I couldn’t let this data slip by without posting it. It appears the Chinese leadership were unnerved by the difficulties and dangers of making the profound adjustments needed to rebalance the Chinese economy. Instead they seem to have unleashed another wave of credit and debt creation in order to continue the increasingly unsustainable old growth model. As a result China’s growth stabilisation has come at the expense of a fresh credit surge. Outstanding debt is now about 215% of GDP and debt servicing has reached a dangerously high 32% of GDP.

I don’t believe that this will end well.

The chart below shows two trends, the left axis and white line shows the growth of debt in China as a proportion of GDP. The right axis and orange bars shows the escalation of debt servicing as a proportion of GDP.

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