As noted earlier today by Houses & Holes, Fitch Ratings agency over the weekend issued one of the starkest warnings yet over China’s credit bubble, which it described as “unprecended in modern world history”. The warning follows an explosion of outstanding credit 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.
Not to be outdone, Moody’s Credit Ratings Agency has today also issued a warning on China’s debt, particularly local government debt and non-bank financing vehicles. From South China Morning Post:
Increased use of irregular financing activities such as trust loans, leases, wealth-management products and project financing pose a risk to local government finances, Moody’s analyst Debra Roane said in a report.
She said such funding from such channels was not being recorded as debt on the balance sheets of local government financing vehicles (LGFVs), adding “a further layer of complexity in determining an individual regional local government’s debt level”…
The audit office found that funding via non-bank channels increased rapidly as the central government tightened up on banks’ lending to LGFVs…
The use of irregular financing highlighted the risks of shadow banking, or unregulated credit offered by non-bank financial institutions…
Decreasing revenues will add to the difficulties of local governments.
Analysts said the economic slowdown would dent their ability to repay loans. Huatai Securities’ analysts said a drop in income from land sales would add to repayment pressures…
According to the audit office’s research report, income generated by land sales equated to 54.6 per cent of the debt repayments made by local governments as of the end of 2012.
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