Is China Heading for New Financial Crisis?

Fund managers have warned ballooning corporate debt could cause a “deep slowdown” in China to tip into full blown recession 

External Writer 20 June, 2016 | 11:07AM
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Leading investment strategist Tim Bond of Odey Wealth Management has warned that China is on course for a recession.

Bond is concerned about the build-up of leverage in China’s non-financial companies. He points to data compiled by the Bank for International Settlements, which shows that the private sector non-financial debt service ratio has risen close to 20%, similar to the levels reached in Europe and the US at the height of their credit bubbles. What’s more, the majority of new credit is being used to pay interest on existing debt or to finance continuing operations.

“It is plausible to argue that a system in which state-owned businesses borrow from state-owned banks, a Minsky moment (when markets refuse to further fund a debt bubble) can be staved off indefinitely. This might be true, but it is not the point.

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar
Rating
Tencent Holdings Ltd596.00 HKD-0.75Rating

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