Too much of anything is bad. So is the case with debt. Too much of debt can be dangerous. China is currently facing such a situation. Consider these facts reported by Bloomberg. A record 2.6 trillion Yuan (US$ 427 billion) of interest and principal on securities issued by non-financial companies would be due in 2014. To give a sense of the magnitude of debt, this is 2 times the economy of Ireland. And 19% higher than the current year!
It is worth noting that there have been no defaults in China's publicly traded domestic debt market since 1997 when the central bank started regulating it. But this trend could soon end as maturing debt reaches a record high next year. What is worse is that interest rates in China are increasing. Against the backdrop of a slowing economy, this seems like a recipe for disaster. Needless to say, this has raised concerns about the likelihood of corporate bond defaults in the dragon economy. If the defaults spiral up, it could destabilise the world's second largest economy. And this in turn could cause turbulence in the world economy as well.
It is worth noting that there have been no defaults in China's publicly traded domestic debt market since 1997 when the central bank started regulating it. But this trend could soon end as maturing debt reaches a record high next year. What is worse is that interest rates in China are increasing. Against the backdrop of a slowing economy, this seems like a recipe for disaster. Needless to say, this has raised concerns about the likelihood of corporate bond defaults in the dragon economy. If the defaults spiral up, it could destabilise the world's second largest economy. And this in turn could cause turbulence in the world economy as well.
Posts
No comments:
Post a Comment