The new 2015 numbers are out. In 2015, China’s Credit dept is at 250% of GDP. That’s more than double what it was is 2008. In just a few short and fast years, China has been creating an accelerating economy by leveraging dept. If this dept can’t be repaid, they are facing a sudden contraction.
So where is all this dept coming from? First of all, the Chinese real estate development bubble. There’s are ghost towns just 1-2 hours driving distance away from all the major cosmopolitan cities in China. That includes Shenzhen, Shanghai, Beijing, and others. The wealthy middle class has been taking out loans to buy their first or second homes and they are all sitting empty. But developers did the same. They took out loans to build these developments. This real estate activity accounts for 15% of China’s total economic growth. That’s substantial.
Another reason is that major brands and manufacturers are taking out loans to build products and sell to the global market. As mentioned earlier in this blog, while China manufacturers have global reach, their quality and usability standards have not caught up. So with products that don’t sell well overseas, and heavy debts, China has a serious credit leverage issue to correct soon. Otherwise, other Asian nations will quickly fill the gap.