From Fairfax:
China is on the verge of a “credit event” that authorities will tightly manage to maintain the country’s financial stability, says JPMorgan’s chief Asian and emerging markets equity strategist.
Hong Kong-based Adrian Mowat says a surge in corporate debt in the final years of China’s infrastructure drive poses the biggest threat to banks’ balance sheets.
A government-led bond market refinancing of loans taken out by companies set up to carry out local government projects will prevent the restructuring from becoming a “Lehman-like credit event”, he says, although banks will have to carry some of the load.
Similarly, companies will pay off about $US550 billion in foreign currency denominated debt via cheaper, lower-risk and longer-dated refinancing in domestic bond markets, he says.
“What China will do is that it will have a low-amplitude credit event,” says Mowat.
That’s a good base case but there are risks!
