'After the financial crash, the authorities in Beijing unleashed one of the biggest stimulus packages anywhere, around four trillion yuan. The effect of this has been massive growth in the debt of its local governments. According to China's National Audit Office, that debt has surged by 20 per cent every year for the past three years, to 10.6 trillion yuan by last summer.
Then there are China's banks. According to a report on Bloomberg yesterday: "China's biggest banks are poised to report the highest proportion of bad debts since 2009 after late payments on loans surged to a five-year high." But that's not half the trouble: China's shadow banking system is estimated to account for 70 to 100 per cent of the country's GDP. It is an impenetrable fog of dodgy deals and toxic debt, the complexity of which nobody can fully grasp.
On top of this, Morgan Stanley argues that China's corporate debt is equal to the whole country's national income, and China's consumers are in more debt than ever. In fact, when you add it up, since 2008 China's public and private debt has ballooned from 135 per cent of GDP to more than 200 per cent today. That growth in credit is faster than in Japan before 1990 — and the US in 2008.'