Poll: What Do the Recent Defaults in China’s Corporate-Debt Market Mean?
From 2008 to 2012, Chinese government debt, at all levels, increased from about 40% of gross domestic product to 53.5%. Yet, when compared with other countries — such as the United States, whose total government debt was 140% of GDP in 2012 — that figure seems relatively paltry. Including private-sector debt in 2012 increases China’s debt profile to 215% of GDP, which also compares favorably with the United States (360% for the same year).
With the announcement of the second default in China’s debt markets, we asked CFA Institute Financial NewsBrief readers if the recent corporate-bond defaults in China reflect a burgeoning systemic risk.
The 781 poll respondents answered with a resounding no. Only 14% of respondents felt that these events are the beginning stages of a systemic crisis. Nevertheless, the centrally planned nature of China’s economy and the widespread development of “ghost cities” suggest that China may be lulled into a sense of complacency about its usage of debt. The issue, as always, isn’t just the size of the debt burden; it is also the quality of the projects financed by that debt. Only time will tell.
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