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More Chinese Growth Fuelled By Debt

Author: Ian Davis - Bullion Manager

Published: 16 Apr 2019

Last Updated: 17 Apr 2019

It has been well reported that the Chinese economy has been sluggish and experiencing a slowdown as we entered 2019. Their economy is growing at the lowest rate for thirty years, Chinese exports have been troubled and regional effects are even felt beyond the border into Asia as the Sino-American trade war rumbles on. Debt default rates are rising, and those surviving banks are plotting a course with the burden of bad debt.  

In a bid to stimulate growth local governments have issued a whopping $179bn worth of bonds which is about a 70% increase year on year. 50% of all bonds issued so far in 2019 are “special purpose” bonds which aim to finance infrastructure projects and stimulate the economy.

With further VAT cuts set to reduce provincial government revenues there could be trouble to come for Chinese productivity. It is likely these local bond issuances will allow for the refinancing of existing debt rather than generate a significant increase in growth.

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