How big is China’s bubble?
China appears to be in the late stages of a debt-fueled investment bubble. It’s not that we haven’t seen this before, it’s just we haven’t seen something on this scale.
To give you a few numbers: China’s banking system right now has assets of $27 trillion; the U.S. banking system in total has assets of $15 trillion. Right now China’s banking system has assets worth more than one-third of global GDP.
Going back to the historical record for data we have had there has never been a time when a country has had that kind of heft in global economics ever. Japan never reached it at the peak of its bubble, notwithstanding the fact that that bubble was very large as well.
As we look at what has been propelling China’s growth over the last couple of years it has been expanding banking assets by $2 trillion to $3 trillion. But China’s economy is only $10 trillion. Growth has been declining through official statistics. Peeling back the numbers and looking at activity on the ground whether that’s electricity consumption, the price of iron ore, which is now at a two to three year low, it appears that activity is slowing even further.
It appears there has been a large build up in nonproductive loans and nonproductive assets. That is going to take some time to be digested in the economy.
