High Debt Risk Requires High Economic Growth Coverage

The Viktor Shvets team of Macquarie analysts said that Chinese state-owned enterprises, especially some zombie companies, had accumulated excessive debts during the period of rapid economic growth in China.

Unless "high"

The vicious circle of high debt dependence and high debt risk needs high economic growth coverage is broken, otherwise it will lead to serious consequences.

The following is the analysis logic of the bank:

1) in order to achieve the goal of economic growth, the Chinese government and the central bank are very generous to the credit expansion of any type of enterprises, especially state-owned enterprises.

When China's economy is growing faster than it is

While accumulating speed, although problems are not exposed, risks are accumulating.

According to Macquarie, as of last year, China's GDP

It has been as high as 350%, about 35 trillion dollars.

2) if more and more companies fail to pay their debts, the willingness of banks and other borrowers will drop.

Once liquidity is dried up, the market will fall into financial crisis.

As the engine of global economic growth, if China's economy is in trouble, it will have spillover effects on the global market.

More succinctly,

China's total factor productivity (TFP) growth is close to zero or has gone to negative territory.

A very low TFP means that economic growth needs leverage (such as 3-5 trillion dollars of debt growth to support the nominal GDP growth of 5%-6%).

Paradoxically, high leverage will corrode confidence in the private sector and further lead to a decline in the turnover rate of money, which further leads to economic growth dependent on more debt accumulation.

This cycle will lead to deflation, lower returns on equity and debt recognition.

Macquarie points out that unless the vicious circle breaks, a financial crisis or a rapid economic downturn will be an inevitable consequence.

Shvets pointed out that China's non-performing loan ratio was about 20%, which amounted to 1 trillion US dollars.

Most of them are in corporate bonds, especially in the field of state-owned enterprises.

According to the IMF financial stability report data, the bank pointed out that China's commercial banks' balance sheet loans or more than 1 trillion and 300 billion U. S. dollars.

Shvets thinks that it is not easy for China to solve this problem.

He pointed out that China's aging population has led to a decline in economic vitality and economic growth is difficult to restore high growth to cover debt growth.

Macquarie believes that even if China can withdraw smoothly from the debt driven investment driven economy, it will lead to the domestic credit crisis or to experience another "lost ten years".

In view of this, the new growth point is probably the only good medicine for the Chinese economy.