Zero Hedge: China Has World’s Largest Credit Bubble11-07 10:51 Caijing
China has the largest credit bubble in the world as corporate debt as a percentage of GDP reached as high as 151%, Zero Hedge said in a recent report.
Hong Kong has the world’s second largest credit bubble with a 141% corporate debt /GDP, followed by Singapore, Malaysia and UK which has a corporate/debt percentage of 135%, 116% and 115% respectively, according to the news site’s findings based on statistics from central banks, Gao Hua Securities, as well as Goldman Sachs.
While government and consumer debt can be whatever China wants it to be, corporate debt, in keeping with Western-style reporting requirements, is far more difficult to obfuscate and falsify in recent years, the report said.
Zero Hedge also quoted Goldman Sachs as saying that the rapid rise of corporate leverage is concerning.
Corporate leverage in China rose to 130% of GDP in 2011, one of the highest corporate leverage ratios in the world, from 96% in 2008.
This high leverage is the result of substantial investment in the manufacturing sector since 2008, leading to over-capacity in many sectors such as solar energy, steel and ship building, the report cited Goldman Sachs.
“It is therefore critical for the new leadership to pursue reforms that not only support the private sector, but also consumption more broadly, in order to utilize this capacity,” said Goldman Sachs.
“If all Chinese debt on and off the books, including shadow leverage, were to be pooled, it would make America's grand consolidated debt of 345% appears quite modest,” the report said.
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