Prominent China debt bear warns of $6.8tn in hidden losses

17 Aug 2017   China

One of the most influential analysts of China’s financial system believes that bad debt is $6.8tn above official figures and warns that the government’s ability to enforce stability has allowed underlying problems to go unchecked. Charlene Chu built her reputation as China banking analyst at credit rating agency Fitch, where she was among the earliest to warn of risks from rising debt, especially in the country’s shadow banking system. Today many of her original views — such as concern about Chinese banks concealing risky credit in off balance sheet vehicles — have become consensus among analysts. “Everyone knows there’s a credit problem in China, but I find that people often forget about the scale. It’s important in global terms,” Ms Chu said in an interview by phone from New York. Ms Chu left Fitch in 2014 to help launch the Asia operation for Autonomous Research, which specialises in analysis of financial institutions. In her latest report, Ms Chu estimates that bad debt in China’s financial system will reach as much as Rmb51tn ($7.6tn) by the end of this year, more than five times the value of bank loans officially classified as either non-performing or one notch above. That estimate implies a bad-debt ratio of 34 per cent, well above the official 5.3 per cent ratio for those two categories at the end of June. Charlene Chu was one the first analysts to warn of risks from China’s rising debt

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