Probably the biggest question facing China and international investors is whether China is deleveraging. The Chinese debt and fixed income markets have changed to the point that people can see almost anything they want. You choose to see China is deleveraging or is still leveraging up, and you can make a case for that. Let us go through the data so we can see how I reach my conclusions, and then how data is being obfuscated, omitted, or not considered.
- Total bank loans in 2017 were up 12.7% with nominal GDP up 11.2%, representing a small boost in total leverage. Stock aggregate financing to the real economy was a bit lower than bank loans at 12% but still representing a small additional leveraging to the debt to GDP ratio. In fairness, this aggregate number is solid.
- What's noticeable about the Chinese debt numbers is how the sub-categories diverged so significantly. Put another way, how China arrived at those aggregate numbers is interesting and instructive. In short, some (not as much as some people argue) financial deleveraging took place and some corporate deleveraging took place but households and government blew up their debt levels. What's notable is that the “deleveraged” sectors did not see absolute falls in debt, they just saw slower growth rates below nominal growth so they remain decidedly weak. The government and household sectors appear to be rapidly looking to match the indebted corporate sector so that the enormity of the corporate debt load is matched across all sectors of the Chinese economy. This makes it that much more difficult for the government or household sector to play a larger role if so needed. We are not at those levels yet, but rapidly moving toward them.
- In the corporate and financial sectors, there actually was progress made on deleveraging. Claims
