Over the weekend, the Telegraph published a stark warning from Fitch Ratings agency over China’s credit bubble, which it described as “unprecended in modern world history”. The warning follows an explosion of outstanding credit in China from $9 trillion to $23 trillion since the Lehman crisis, dwarfing the experience of the US in the lead-up to the sub-prime credit crisis, or Japan before the Nikkei bubble burst in 1990. Fitch also claimed that China’s shadow banking system is out of control and under mounting stress as borrowers struggle to roll over short-term debts, with around $1 trillion of so-called “wealth products” loans needing to be rolled-over every three months.
Following on from that article is the above interview aired on Bloomberg Television with Charlene Chu, head of China financial institutions for Fitch Ratings. In the interview, Chu notes that “We are starting to see some issues emerging” in bank liquidity, in reference to China’s worst cash crunch in at least seven years. Chu believes the tightening is “emblematic of some of the shadow banking issues coming to the fore as well as some of the tight liquidity associated with wealth management product issuance, and the crackdown on some shadow channels”. She also thinks that China is “going to have banking sector problems. Those can manifest either in a crisis or they can manifest in slow growth.”
