Advertisement
UK markets closed
  • FTSE 100

    7,952.62
    +20.64 (+0.26%)
     
  • FTSE 250

    19,884.73
    +74.07 (+0.37%)
     
  • AIM

    743.26
    +1.15 (+0.15%)
     
  • GBP/EUR

    1.1715
    +0.0021 (+0.18%)
     
  • GBP/USD

    1.2623
    +0.0001 (+0.01%)
     
  • Bitcoin GBP

    55,340.33
    -582.03 (-1.04%)
     
  • CMC Crypto 200

    885.54
    0.00 (0.00%)
     
  • S&P 500

    5,254.35
    +5.86 (+0.11%)
     
  • DOW

    39,807.37
    +47.29 (+0.12%)
     
  • CRUDE OIL

    83.11
    -0.06 (-0.07%)
     
  • GOLD FUTURES

    2,254.80
    +16.40 (+0.73%)
     
  • NIKKEI 225

    40,369.44
    +201.37 (+0.50%)
     
  • HANG SENG

    16,541.42
    +148.58 (+0.91%)
     
  • DAX

    18,492.49
    +15.40 (+0.08%)
     
  • CAC 40

    8,205.81
    +1.00 (+0.01%)
     

Goldman Sachs nails the staggering size of China's debt in 3 simple charts

china load carry
china load carry

REUTERS/Stringer

Want to know why everyone is obsessed with China's massive debt buildup?

Goldman Sachs analyst Andrew Tilton and his team just published a note on that topic, which contains three charts that really sum the whole thing up.

China's debt load is growing, but its economy is slowing.

Right now, that seems to be working out OK. Tilton's theory is that new credit growth is a proxy for economic growth — business and consumers borrow money because they need it and have the cash flow to service the debt, and that economic activity is good for GDP. Remember that some of the old debt is retired each quarter, too.

ADVERTISEMENT

But sceptics worry that China won't be able to grow its way out of debt forever.

China issued $1 trillion in new credit in Q1 2016. One. Trillion. Dollars:

china
china

REUTERS/Stringer

China's ongoing debt is nearly 270% of GDP:

china
china

REUTERS/Stringer

And the economy is slowing:

debt
debt

REUTERS/Stringer

Just to be clear, Tilton is largely bullish because he believes that credit growth is greasing the wheels for the Chinese economy in a good way. But he adds this caveat (emphasis added):

While this seems likely to provide at least some boost to investment and activity in the near term, it also raises questions of sustainability over the medium term, given the already-large increase in China's debt-to-GDP ratio in recent years.

NOW WATCH: British entrepreneurs are bottling fresh air and selling it to China for $115 a pop

See Also:

SEE ALSO: China is carrying $1 trillion in bad debt and 'unless this vicious cycle is broken, financial crisis or at least a sharp slowdown is an inevitable ultimate outcome'