Issues to ask the Wolf Financial Times

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Add to that the fact that global banks are distressed (link1), and this cannot be good. Among large economies, China is the most exposed with average book/market of well below 50%. But, instead of giving space, Beijing is adding further stresses (link2). Parsing the data, it would appear China is once again using its banks to bail out non-bank enterprises. Total nonbank repo borrowing has risen from 6 trillion yuan in 2015 (last real estate crisis) to 157 trillion yuan today (26x), while repo borrowing by small/medium banks has actually declined [WSJ]. GDP has not even doubled since 2015 ($11 tr to $18 tr). It would seem reasonable to argue that China's debt is being financed through rolling short term debt. As S&P Global (link3) reports, "Efforts to roll over maturing debt while cutting funding costs have resulted in ever shorter maturities amid stubbornly expanding debt levels. Over the past five years, the sector's cash to short-term maturities ratio halved to just 0.5x from 1x (see chart 1)...Meanwhile, short-term maturities have grown faster than total debt, with short-term maturities (due within 12 months) more than one-quarter of total debt at the end of 2022." As the WSJ states, "Climbing rates after a period of rapidly rising borrowing is always a potentially combustible situation—especially when the real economy is already struggling." We know where that ends from 2008. Unfortunately, while China looks most vulnerable, global economy does not seem healthy with banks in nearly all major economies having bloated balance sheets (European bank book to market is ~0.75 with Us not too much higher). Fortunately there are not many other stressors in western economies, but a recession and next year looks very likely. https://www.reuters.com/business/finance/global-banks-face-negative-outlook-property-stress-2024-moodys-2023-12-04/ https://www.wsj.com/finance/pressure-is-building-in-chinas-financial-plumbing-c8e85bc5?mod=finance_lead_pos2 https://www.spglobal.com/ratings/en/research/articles/230907-china-policy-patches-alone-won-t-fix-lgfvs-fraying-liquidity-12841740