China: A looming crisis?

Here’s a chart from FT Alphaville citing a report from a Societe Generale analyst on China’s looming credit crisis.

FTAchinalending

Courtesy of FT Alphaville

See the steep increase.  Somehow I’m inclined to think China will be fine.  Or I’m just being too optimistic or finding it hard to see China being in some form of a crisis. Anyway, here’s the quote from Dylan Grice of SocGen:

In fact, the state-orchestrated inflation of bank credit is reckless (see Chart). Banks which haven’t wanted to lend have lent to borrowers who didn’t want to borrow, yet the money is now flowing into the stock market, into commodity inventories and into property. This raises serious questions over the value of the banks’ collateral.

If we learned one thing over the last few years it was to be suspicious of explosive credit growth. Yet the Chinese threaten to repeat the recent financial mistakes made in the West. No doubt the authorities are confident that no harm will come of such bank credit inflation or that, if it does, they will be able to control what they have unleashed. Unfortunately, this in itself is a repeat of the mistake made by Western policymakers.

Source: FT Alphaville

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