China’s Debt Problem is Bigger Than You Think

Bad loans are 10 times as large as official Chinese data suggest, research firm says

by Sue Chang
Market Watch

China’s bad loans are many times worse than what the official data are claiming, and the Chinese authorities do not have a strategy to tackle the problem, according to the latest research from CLSA.

“Nonperforming loans will worsen with the slowing economy, but the government does not have a comprehensive plan,” Francis Cheung, head of CLSA’s China and Hong Kong strategy, said during a presentation Friday.

Cheung estimated that the country’s bad loans are actually around 15% to 19%, significantly more than the 1.6% announced by the government recently. At that rate, it will require at least $1 trillion, equivalent to 10% of the economy, to clean up the banking sector, he said.

That is in line with a study from the International Monetary Fund last month that indicated that loans at risk account for about 15.5% of total bank loans, or $1.3 trillion.

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