China has a massive debt problem, its economic growth is slowing, and is now becoming a major concern for investors around the world.
And, in a note released on Tuesday entitled “China: Solving the debt problem,” Craig Chan and his team at Nomura unveiled a key chart which sums up how China’s government strategy to fuel growth is seriously failing:
China takes on huge amounts of debt in order to fuel its ferocious economic growth.
In June, Li Yang, a senior researcher with the China Academy of Social Sciences said China’s total borrowings were more than double its gross domestic product (GDP) in 2015 at 168.48 trillion yuan (£19.3 trillion, $25.6 trillion).
But growth is slowing. China no longer puts up double digit GDP growth, and instead is recording numbers like 6.7% for the second quarter. Even that is being debunked by a number of asset managers and analysts.
This chart proves that China’s strategy of fuelling growth by taking on debt and investing in state-owned enterprises is not working anymore and needs a sea change.
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