The more debt the merrier, the saying goes, at least until the party stops and the hangover starts. This is true for the debt situation inside China, as well as for international lending to China.
According to the Bank for International Settlements (BIS), total cross-border bank lending to China decreased $63 billion to $698 billion at the end of the first quarter of 2016. Over the year, this measure is down 27 percent.
“Since hitting its all-time high at the end of September 2014, cross-border bank credit to China has contracted by a cumulative $367 billion (–33 percent), with interbank and inter-office activity leading the decline,” the BIS writes in a recent report.
The total stock of outstanding cross-border bank credit was $27.5 trillion at the end of March 2016.
This is important because that money is not coming back. Once the loan or debt is paid off, it vanishes and can’t be used to fuel other financial or economic transactions. It is part of the reason why many economies in the world are teetering on the edge of a recession with only bank lending to Western governments balancing out the emerging market credit decline.
The reduction in bank lending is part of the capital that is flowing out of China by the hundreds of billions, $676 billion in 2015 alone. International banks are reducing credit lines to Chinese banks or are taking their maturing investments out of the country.
