CLSA Analyst Sees NPLs At 8.1% In 2016

ZH: One Analyst Says China's Banking Sector Is Sitting On A $3 Trillion Neutron Bomb

Just two weeks after we highighted the Macquarie report, we took a look at research conducted by Hong-Kong based CLSA. Unsurprisingly, it turns out that Chinese banks' bad debts ratio could be as high 8.1%, a whopping 6 times higher than the official 1.5% NPL level reported by China's banking regulator.

Every credit bubble bursts and this is the largest in world history. At this point, the "Black Swan" would be if China pulled through without a financial crisis or full on recession.

Related: Explosion in Chinese SOE debt

China’s state owned enterprises added almost 6 trillion yuan (around 1 trillion dollars) of debt in September, described by Luo Yunfeng, an analyst at Essence Securities, as “an unprecedented increase in leverage”. This means that not only is the government abandoning its deleverage policy, it is actually increasing leverage.

Latest Ministry of Finance data shows that by the end of September total SOE debt had reached 77.68 trillion yuan, representing a increase of 5.93 trillion yuan on August, and an increase of over 11 trillion yuan in 2015.

According to Luo “it’s possible that debt that was originally classified as government debt, has been reallocated as SOE debt”.

This might be a reflection of how the government plans to tackle its massive debt. Luo mentions that one of the obstacles to managing government debt is that it remains difficult to draw a line between government and SOE debt. The crux of of current reform plans to increase the role of market forces is aimed at resolving this issue.

Debt levels explode at the end.