Will China’s credit binge spark the next global banking crisis?
Adam Pike, News Editor
20 Sep 2016, 9:52 a.m.
China’s financial system could be on the verge of a debt crisis, according to the Bank of International settlements (BIS). China’s total debt, which includes government, corporate, and household debt, now tops $25 trillion which is equivalent to 255% of the countries Gross National Product.
As growth slowed the Chinese government responded with unprecedented levels of money printing. The emerging giant has become addicted to cheap credit and any rise in borrowing cost could potentially burst the country's debt bubble. China is no longer considered a poor relation and should the economy contract the effects would be felt globally.
The BIS warned that there are ample reasons to be worried over the state of the global economy. Negative rates and central bank bond purchases have made markets extremely sensitive to any change in monetary policy. With over $10 trillion of government debt now trading in negative territory and stock markets priced to perfection, could the bursting of China’s debt bubble be the catalyst for the next financial crisis?