Chinese GDP growth fuelled by debt

“Reported GDP growth of 6.9% in China during 2015 represents a marked slowdown from previous years and is therefore unlikely to calm Western market fears about two things" says Russ Mould, AJ Bell Investment Director.

“First, if China is slowing down, it raises the question of whether the authorities will be tempted to let the renminbi slide yet lower, giving a boost to Chinese manufacturers but potentially exporting deflation to the rest of the world.

“Second, any Chinese slowdown only points to the elephant which is still in the room, namely debt. This isn’t just a Chinese problem, it is a global one, but core Chinese debt (loans to the non-financial sector) has mushroomed from 187% of GDP to 244% of GDP since the end of the great financial crisis in 2009, (see Chart).  This suggests a lot of the recent growth is based on the potentially wobbly foundations of ever-more borrowing, something which has now well and truly caught up with us in the West.”

Source: Bank of International Settlements, December 2015

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