The rapid buildup of Chinese debt between 2008 and 2015 was nothing short of historic.
In that time, the country’s debt-to-GDP level nearly doubled from 154% to 249%.
That “ranks in the 98th percentile of debt buildups in modern history,” according to a note from Andrew Tilton and Jonathan Sequiera at Goldman Sachs published on Monday.
There are few comparable examples outside of war time.
Goldman Sachs, adjusting for the sheer size of China’s economy said there were parallels with “Japan in the first decade of the 1900s during and after the Russo-Japanese War, Canada and several European countries during and after World War I, and the United States during and after World War II.”
Here is the chart:
When it comes to the nominal amount of debt added, coupled with the sheer size of China’s economy, there really is no precedent since 1960, according to Goldman Sachs, which calls the buildup an “outlier in the historical record.”
Here’s the chart to show how much China stands out:
Goldman Sachs said “one of the most frequent questions” from clients is whether this will inevitably lead to a financial crisis when the bubble bursts. While banking crises are “common,” Goldman Sachs said, they’re “not inevitable.”
Let’s hope so.
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