Chinese Credit Bubble

• Chinese banks had assets of ~40Trillion at the end of 2017
• This is close to 50% of world GDP
• No other country has come to this high level
• Suggests that lending in China as not been very conservative
• Much of the debt has funded "ghost cities", "bridges to nowhere" and other non-performing infrastructure projects
• Created short term growth and jobs, but can't be repaid
• A significant portion of Chinese Debt is denominated in US dollars (becomes harder to pay as the Chinese Yuan Falls against the Dollar)
• Many state-owned-enterprises owe each other in an unsustainable chain that will be hard to repay
• Wealth Management Products (WMP) are invested in troubled real estate deals
• Significant amount (trillions) of off-book debt from local governments
• Considered by some to be a Ponzi Scheme
• The debt can't be repaid, rolled over or refinanced without the help of the government
• The debt hasn't generated enough income/value to pay for itself
• There are concerns that once this bubble breaks, it will also impact other markets
• Large corporations and state governments began to default in 2018

Attempts To Control

• President Xi Jinping tried a deleveraging program in 2017, but it was too hard to swallow. 
• The economy began to cool too quickly
• Instead more debt fueled projects and growth followed in 2018