Chinese debt levels – an elephant in the room

People’s Bank of China Governor Zhou Xiaochuan fired a warning shot over rising debt levels, saying lending as a ratio to GDP — and especially corporate debt — had become too high.

Key quotes

“Lending as a share of GDP, especially corporate lending as a share of GDP, is too high,” Zhou said. He said a high leverage ratio is more prone to macroeconomic risk.

One option for addressing high leverage is to develop “robust capital markets,” Zhou said, echoing Li’s remarks  (this for me is again pointing to full Yuan convertibility, which in turn means long-term trend in Yuan is bearish)

As per OECD, corporate debt alone now stands at 160 percent of China’s GDP


 

The news could disrupt financial markets, As of now, the NZD/USD pair is trading with miniscule gains, meanwhile, Yen, EUR and GBP price discovery is yet to begin.

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