There’s a rising concern that China’s pools of potential bad debt will drag down global economies for some time to come. While there has been plenty of toxic debt that companies and individuals have kicked around since the financial crisis of 2008, the loans from government-owned banks to government-owned enterprises in China possibly pose a new risk because of their unknown size and unique risk profile. According to The New York Times, analysts currently estimate China’s troubled credit to exceed $5 trillion. In many cases, the Chinese government (at the local or state level) has ownership stakes in both the lending institutions and the borrowing ones, which means the credit risks from a potential toxic debt hangover aren’t diversified enough to create a soft landing. Chinese banks began a lending pull back at the end of last year, which means that the Chinese economy could slow down even more than it already has. The potential result may be continued volatility in the global financial markets. To read more, click here.
