Below are two interesting interviews that aired late Friday and over the weekend featuring my favourite China watcher, Patrick Chovanec, who is managing director at Silvercrest Asset Management Group and former professor at Tsinghua University in Beijing.
In the first interview on Channel News Asia, Chovanec explains how China’s authorities are treading a tightrope in trying to both curb excessive credit growth, whilst also trying to maintain a solid rate of growth in the economy. The problem, according to Chovanec, is that China’s economy has become far too dependent on credit to fuel the economy, much of which has been channeled into unproductive and speculative malinvestment. And once credit is pulled-back, the economy will necessarily slow abruptly, whilst also risking a sharp increase in non-performing loans and defaults. At the same time, if China’s authorities continue to allow credit to run, it risks bigger imbalances, more unproductive and speculative investment, and a harder unwind down the track.
In the second interview on CNN, Chovanec argues along similar lines that China is facing a “chronic problem” whereby credit has been used to “paper over” non-productive malinvestment. And now that the Chinese authorities are pulling back on credit growth, it risks exposing its banks to vast non-performing loans and defaults.
