DEBT: The US Vs. China

Heightened volatility in China’s short-term interest rates has some people worried if the world’s second largest economy is doomed for a credit crisis.

For a discussion on this, check out our Q&A with Patrick Chovanec.

Generally speaking, economists think that China’s financial risks are contained, yet they also warn it’s something to keep an eye on.

Here’s Wells Fargo Securities’ quick summary of all the debt in China:

Does China have a debt problem? The answer would appear to be “no” when analysing the Chinese household and central government (i.e., Beijing) sectors where the debt-to-GDP ratios at present are only 30 per cent and 15 per cent, respectively. Comparable ratios in the United States are 80 per cent and 70 per cent, respectively. However, the debt-to-GDP ratio of the Chinese business sector is 140 per cent, whereas its American counterpart stands at 80 per cent. Although there are few visible signs of financial stress in the Chinese business sector at present, further increases in leverage could eventually spell trouble. Stay tuned.

“Our caution regarding the Chinese debt situation would become more elevated in the future if we see rapid credit growth in conjunction with slow economic growth,” wrote Wells Fargo’s Jay Bryson.

However, economists like Societe Generale’s Wei Yao worry that this may have already happened.

When considering the chart above, keep in mind that China’s economy is growing around twice as fast as the U.S.’s.

NOW WATCH: Money & Markets videos

Want to read a more in-depth view on the trends influencing Australian business and the global economy? BI / Research is designed to help executives and industry leaders understand the major challenges and opportunities for industry, technology, strategy and the economy in the future. Sign up for free at