Larry Fink is worried about China’s debt problem.
In an interview with Bloomberg Go Wednesday morning, the BlackRock CEO said there was a one in five chance of the country’s debt bubble bursting.
“Am I worried about in the manner in which they are accelerating their economy? Yes,” Fink said.
“Does it mean there is more potential for a bubble and a burst? Yes.”
Fink believes there is a “20%” chance” the bubble pops
“I don’t like the 20%,” he said.
This bubble has been a drawing the attention of China-watchers for some time now. Credit growth in the first quarter was up 58% over the same quarter in 2015 at 7.8 trillion Chinese yuan and the total debt stands around $28 trillion.
In order to sustain the high level of economic growth the country is used to, the government and private institutions have been handing out loans in order to keep Chinese workers employed and growth on track.
“The banks are lending at a rate that they have not done before,” said Fink.
“So indeed, in 2016, China will look way beyond what we thought it would look like economically, GDP-wise, in 2016. It may mean the bubble is bigger for ’17 and ’18. But in this year, especially in light of the Chinese are the host of the G20 in September, they will want to make sure that their economy is a beacon of strength.”
As Business Insider’s Rachel Butt noted yesterday, Chinese banks have issued more loans in the last three months than the US corporate debt market ever has.
This has kept long-standing, and now suffering, industries such as coal and steel cranking while the economic outlook has gotten worse.
The reason that Fink is only putting a 20% chance on a debt collapse is the classic Chinese economic story: growth.
“I would — first of all, the economy is still growing at 6-ish per cent,” said Fink. “It could — when you grow at that rate, you can navigate out of this problem if the next phase of growth is not by a ballooning balance sheet.”
Even if the bubble does burst, in Fink’s opinion, it probably won’t happen this year.
“But I think in 2016, you’ll will look back and say, I wish I was in China,” said Fink.
“I think the equity market will do fine this year. I’m not telling you it is a great long-term trade.”