Chinese Debt Risk Rising

China has 179 trillion in M2 money supply ($26 trillion). There are $3 trillion in currency reserves, about 11.5 percent of M2.

M2 is a conservative measure of money supply because it doesn't include off-balance sheet items that might eventually end up in money supply should the central bank monetize it.

Bloomberg: China May Have $5.8 Trillion in Hidden Debt With ‘Titanic’ Risks
“The potential amount of debt is an iceberg with titanic credit risks,” S&P credit analysts led by Gloria Lu wrote in a report Tuesday. Much of the build-up relates to local government financing vehicles, which don’t necessarily have the full financial backing of local governments themselves.

...Even with the central government’s shift toward stimulus, however, S&P sees Beijing determined to “bring discipline to the financing practices of local governments and their LGFVs.” That ultimately may mean local authorities aren’t fully able to keep LGFVs afloat, however, and the bottom line is “the default risk of LGFVs is increasing.”
There's no evidence of fiscal discipline yet. All previous attempts failed. China works hard to avoid private bond defaults. Authorities might make an example of someone, but it will not allow widespread defaults. The debt will be rolled over, eventually monetized (directly or indirectly) by a bailout.

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