In China Bond Defaults Continue To Soar As Credit Tightens

Many longtime readers know that I’ve remained skeptical about China’s economy for a couple years now.

And while the mainstream financial media hasn’t worried much over China’s economic future – I still do.

That’s because China’s growth is extremely important to the global economy (especially since 2008). It has more-or-less carried the global economy.

Debt, Loan, Credit, Money, Finance

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(Note that via the ‘locomotive effect’ –  a key theory in macro-economics – China’s economy surpassed the US as the marginal growth engine post-2008. Meaning: due to China’s economic scale and above-trend growth – their boom-bust cycles carry the world along with them).

But – after years of binging on cheap debts, an over-reliance on investment driven projects with steadily diminishing returns, and a rapidly aging population – China’s economy has grown increasingly fragile.

Thus – putting it simply: I believe that China’s economy has grown very out-of-balance. And is approaching a deflationary tipping-point – much sooner than many realize.

Let me explain. . .

Due to more than a decade of easy-money – thanks to global central banks – global governments and firms binged on cheap debt (especially the emerging markets).

And thus – 11-years later – China’s debt levels have soared to the highest among major emerging markets. . .

And to make matters worse – it now seems as if China’s domestic debt-load has hit a point where it can nolonger be safely sustained by simply ‘rolling-over’ maturing debts (aka refinancing).

For instance – in just the first five months of 2021 – Chinese firms have already missed 99.8-billion-yuan ($15 billion) worth of on-shore bond payments. (And defaults on off-shore dollar-denominated bonds have also soared $4 billion in the first 3-months of 2021 – already half of 2020’s total).

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