Share

China's debt is higher than previously thought: Goldman

New York - Count total social financing (TSF) as another Chinese statistic of increasingly dubious value, according to analysts at Goldman Sachs Group Inc.

With many investors grappling to understand the degree to which China's economic growth has been fueled by debt, efforts to get a grip on measures of new credit creation have gained fresh urgency.

To date many have relied on the TSF invented by the Chinese authorities in 2011 as a way of capturing a larger slice of the country's shadow banking activity, but Goldman analysts led by MK Tang cast fresh doubt on the measure's ability to gauge credit creation in a note published on Wednesday.

They identify a discrepancy between China's official TSF and Goldman's new proprietary estimates of credit, describing the growing difference as "an uncomfortable trend that has gotten more discomforting."

Of particular issue is the rise in opaque loans given noises surrounding China's circular financing schemes, which involve banks lending to non-bank financial institutions (NBFIs) as opposed to directly to companies.

While this "round-tripping," as Goldman dubs it, does help boost bank profits, it also means more investments on bank balance sheets and more money meandering through the financial system as opposed to moving into the real economy through an increase in M2 money supply.

Faced with an increasingly tangled system of financing and a money supply measure that doesn't fully encapsulate new credit creation, the Goldman analysts opt to take a slightly different approach to gauge the strength of China's recent credit boom. They look at the (adjusted) flow of money emanating from households and companies and going into various financial investments.  

On that basis, China's credit creation came in at 24.6 trillion yuan last year — far outstripping the 16 trillion yuan increase in money supply and the 19 trillion yuan of TSF.

"Such a scale of deterioration [in China's leverage] certainly increases our concerns about China’s underlying credit problems and sustainability risk," the Goldman analysts conclude.

"The possibility that there is such a large amount of shadow lending going on in the system that is not captured in official statistics also points to [a] regulatory gap, and underscores the lack of visibility on where potential financial stress points may lie and how a possible contagion may play out."

We live in a world where facts and fiction get blurred
Who we choose to trust can have a profound impact on our lives. Join thousands of devoted South Africans who look to News24 to bring them news they can trust every day. As we celebrate 25 years, become a News24 subscriber as we strive to keep you informed, inspired and empowered.
Join News24 today
heading
description
username
Show Comments ()
Rand - Dollar
18.94
-0.2%
Rand - Pound
23.91
-0.1%
Rand - Euro
20.43
+0.2%
Rand - Aus dollar
12.34
+0.1%
Rand - Yen
0.13
-0.2%
Platinum
910.50
+1.5%
Palladium
1,011.50
+1.0%
Gold
2,221.35
+1.2%
Silver
24.87
+0.9%
Brent Crude
86.09
-0.2%
Top 40
68,346
+1.0%
All Share
74,536
+0.8%
Resource 10
57,251
+2.8%
Industrial 25
103,936
+0.6%
Financial 15
16,502
-0.1%
All JSE data delayed by at least 15 minutes Iress logo
Company Snapshot
Editorial feedback and complaints

Contact the public editor with feedback for our journalists, complaints, queries or suggestions about articles on News24.

LEARN MORE
Government tenders

Find public sector tender opportunities in South Africa here.

Government tenders
This portal provides access to information on all tenders made by all public sector organisations in all spheres of government.
Browse tenders