09-10-2015, 10:07 PM
Balance sheets matter. This is the biggest lesson of the financial crises that have rolled across the world economy. Changes in balance sheets shape the performance of economies, as credit moves in self-fulfilling cycles of optimism and pessimism. The world economy has become credit addicted. China could well be the next victim.
How addiction to debt came even to China - FT.com
Start with the sources of vulnerability. In economies with liberalised financial sectors, the driver towards disaster is far more often private than public imprudence.
How addiction to debt came even to China - FT.com
In an update of work on debt and deleveraging, McKinsey notes that between 2000 and 2007, household debt rose as a proportion of income by one-third or more in the US, the UK, Spain, Ireland and Portugal. All of these countries subsequently experienced financial crises. Indeed, huge increases in private sector credit preceded many other crises: Chile in 1982 was an important example of this connection. Ruchir Sharma of Morgan Stanley argues that the 30 most explosive credit booms all led to a slowdown, often a crisis. Thus, in seeking new vulnerabilities, we need to look for economies that have had sharp rises in private debt. China leads the pack, with a rise of 70 percentage points in the ratio of corporate and household debt to GDP between 2007 and 2014 (see chart). If we add financial sector debt, the rise in gross private indebtedness is 111 percentage points. With government debt included, it is 124 percentage points.
How addiction to debt came even to China - FT.com
The government forecast a budget deficit for 2015 equal to 2.3 percent of GDP, but Finance Minister Lou Jiwei said in March the real fiscal deficit would be 2.7 percent of GDP, the widest since 2009, after taking into account unspent amounts from previously allocated funds. Last year, government spending rose 8.2 percent, slower than the 9.5 percent goal.
China looks to fiscal stimulus to fight slowdown
Local governments alone face a debt-service burden of about 1 trillion yuan this year ($156 billion), according to JPMorgan Chase & Co. Revenue from land sales in the first seven months plunged 954 billion yuan from a year earlier, according to the government. Growth in fiscal revenue was 5.4 percent in the first seven months compared with 8.5 percent a year earlier using the same methodology, highlighting pressure on receipts.
China Stimulus Is Tough to Take Off in Land of Challenges - Bloomberg Business
China's manufacturers slashed prices at the fastest rate in six years in August as commodity prices fell and demand cooled, signaling stubborn deflation risks in the economy and adding to expectations for further stimulus measures. The producer price index (PPI) fell 5.9 percent in August from the same period last year, its 42nd consecutive month of decline and the biggest drop since the depths of the global financial crisis in late 2009, data showed on Thursday.
China deflation fears grow as producer prices sink most in six years | Reuters
China's management of the world's second-largest economy hasn't gone swimmingly of late, but authorities have succeeded in one vital though little-noticed mission. They've closed the gap between the market value of the yuan and its official daily value, known as the "fixing."
One Thing China Got Right - Bloomberg Business