LONDON – Charlene Chu, an influential China analyst, of Chinese debt, warned the country’s debt problem is starting to have global implications.
Speaking to the Financial Times’ Gabriel Wildau this week, Chu said: “Everyone knows there’s a credit problem in China, but I find that people often forget about the scale. It’s important in global terms.”
Chu became well-known while working as an analyst for ratings agency Fitch as one of the first people to openly warn about the risks of rising debt in the country, a view that is now widely shared even among international institutions.
Chu estimated that there will be as much as $7.6 trillion worth of so-called “bad” debt in the Chinese economy by the end of 2017. Bad debts are generally those with unsustainable interest rates which risk getting their holders into difficulty and perhaps defaulting.
The level of government control over market activities, and the way authorities are managing the situation is also an area of growing concern, Chu told the FT, saying: “What I’ve gotten a greater appreciation for is how everything is so orchestrated by the authorities.”
“The upside is that it creates stability. The downside is that it can create a problem of proportions that people would think is never possible. We’re moving into that territory.”
Chu’s comments come just over a day after the International Monetary Fund warned in its annual report on China that the country’s huge debt pile could be the trigger for the next financial crisis as borrowing reaches unsustainable levels.
Citing the experiences of other countries which have fuelled growth via taking on debt aggressively, the fund warned that the current trajectory of China’s debt is “dangerous.”
“International experience suggests that China’s credit growth is on a dangerous trajectory, with increasing risks of a disruptive adjustment or a marked growth slowdown,” the report said.