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Alarmingly large Chinese corporate debt load in the news

A statement by a Chinese official at the big conference of financial heavyweights in Davos mentions a plan to reduce debt (My link is to a New York Times article on the official’s speech.)

Various objective indicators suggest that the burden of corporate debt in China is indeed excessive and high enough to pose a risk to the Chinese and world economies.

This NYT magazine “On Money” feature from a while back describes lending that is risky enough to undermine the stability of the financial institutions holding it. Key signs of destabilizing potential mentioned in the article include:

1) market-rate debt for projects and countries that usually garner extra-high interest rates to make big projects feasible, because the borrowing economies are developing, rather than mature

2) examples of projects that may be unsustainable after completion, like an airport in Sri Lanka that may not have enough flights to stay open;

3) finally, an apparent shell game in some cases in which lending-driven business keeps Chinese builders and other contractors in the black–while lenders pile up I.O.U.s that may never be repaid.

Qualitative and quantitative signs exist that may indicate the possibility of trouble, and the managers of the Chinese still-non-laissez-faire economic system continue to work to manage and stabilize fragility.



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