Page 24 - September October 2018 Disruption Report Flip Book

MONETARY POLICY SEJPATN.U-AORCYT.20210818
out of the U.S.’s number one property—intellectual property is a great idea either. ...I think the U.S. still has the best financial system in the world. (CNBC, Matthew Belvedere and Kyle Bass, 10/23/18)
China’s hidden $6 trillion debt “iceberg” poses “titanic risk”
China could be facing a “debt iceberg with titanic credit risks” after a boom in infrastructure projects by local governments, warned S&P Global. Local governments may have accrued off balance sheet debt as high as 40 trillion yuan ($6 trillion USD), following “rampant” growth in borrowing, according to the rating agency’s estimates. The “ratio of government debt to GDP could have reached 60% in 2017—an alarming level,” according to S&P Global analysts Gloria Lu and Laura Li.
China’s rising debt levels are major concern for the global economy, triggering fears that a wave of debt defaults could be imminent. There are Chinese cities with “hundreds” of the local financing vehicles across the country, according to S&P analyst Richard Langberg. While defaults at a few smaller LGFVs could be handled by the financial sector, “if they start to let the bigger ones go then we are getting into uncharted territory,” cautioned Langberg.
In September, S&P Global lowered its long-term issuer credit ratings on seven vehicles, including two in the city of Tianjin, located just outside of Beijing. (Business Insider, Will Martin, 10/17/18; Financial Times, Don Weinland, 10/16/18; CNBC, Evelyn Cheng, 10/16/18)
The growing risks of the leveraged loan market
In October, the IMF urged governments to tackle record debt, totaling $152 trillion, to mitigate risks of another financial crisis. In new research that used as a benchmark its half-yearly fiscal monitoring of 113 countries, the IMF found that debt is currently 225% of global GDP, with the private sector responsible for two thirds of the total.
“A crucial message from the fiscal monitor is that when private debt is on an unsustainable path
it is important to intervene early on in the process to make sure financial crises and recessions can be prevented,” said Vitor Gaspar, the director of the IMF’s fiscal affairs department. This debt is unevenly spread and concentrated in the advanced countries of the west and some of the big emerging market economies such as China, according to Gaspar. “China is so large and the debt of non-financial corporations is growing so fast that it is having significant effects on global trends,” he added. (The Guardian, Larry Elliott, 10/05/18)
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