Chart of the Day: China Isn't Deleveraging (Yet) But Most of Asia Is!

Chart of the Day: Only One Asia Economy Has De-Leveraged Since The GFC. Guess Who?

Economist

Richard Iley

Macroeconomics

<div class="content-highlight"><p><strong>Forget talk about de-leveraging. Bank of International Settlements (BIS) data on international debt issuance reveal that Chinese corporates are gorging themselves on USD debt at a record pace. Effectively a carry trade, Chinese offshore borrowing is a key, albeit unsung, driver of the abundant global liquidity currently flushing around the globe. There are a number of implications. Record offshore issuance means that onshore measures of Chinese credit growth underplay true growth in leverage. Currency mis-match risk also continues to escalate for China's corporates. Any renewed shift in expectations around the CNY could therefore quickly trigger the type of disorderly dynamics previously seen in 2015 and 2016. The fact that much of the offshore issuance is short-term additionally means that roll-over risk is also climbing, even as a booming US economy looks set to see the Fed press on with interest-rate hikes. </strong></p></div>

Forget talk about de-leveraging. Bank of International Settlements (BIS) data on international debt issuance reveal that Chinese corporates are gorging themselves on USD debt at a record pace. Effectively a carry trade, Chinese offshore borrowing is a key, albeit unsung, driver of the abundant global liquidity currently flushing around the globe. There are a number of implications. Record offshore issuance means that onshore measures of Chinese credit growth underplay true growth in leverage. Currency mis-match risk also continues to escalate for China's corporates. Any renewed shift in expectations around the CNY could therefore quickly trigger the type of disorderly dynamics previously seen in 2015 and 2016. The fact that much of the offshore issuance is short-term additionally means that roll-over risk is also climbing, even as a booming US economy looks set to see the Fed press on with interest-rate hikes. 

China: Offshore Debt Surging, Financial Risks Escalating