A building debt crisis
Latest News »
- Treat us with respect: Pakistan Army chief Gen Qamar Javed Bajwa to US
- Former CIA agent wants to buy Twitter to kick Donald Trump off
- Narendra Modi to visit Gujarat on 17 Sept to inaugurate Narmada Dam
- Congress says not to ally with NCP for Gujarat assembly polls
- Haryana, Punjab on high alert ahead of verdict in Dera chief Ram Rahim Singh case
China is sitting on a corporate debt problem that makes the Indian one look modest in comparison. The International Monetary Fund (IMF) estimates that the stock of corporate debt is 145% of the size of the Chinese economy. Public debt and household debt are another 40% each. Can China deal with this when its economy is slowing?
IMF’s first deputy managing director David Lipton said in a recent speech that the potential losses to banks from their corporate portfolio is around 7% of gross domestic product—and this excludes the festering problems in the shadow banking system. In other words, the costs could be in excess of $1 trillion. That is not a small number even for an economy as large as China’s. It could be a bigger bill than what the US paid for its Troubled Assets Relief Program (Tarp).
A lot of the discussion in India is about the impact of a slowing Chinese economy. Let us not forget the prospects of financial instability arising from a banking crisis.