In last month’s post, we highlighted real estate and slow growth warning signs of what seems to be an inevitable economic crash in China. The scariest part about these flashing signs is that there are plenty more indicators we hadn’t touched on. Let’s look deeper into some of the unemployment and debt issues China faces as it moves towards a tipping point of what could be an economic crisis.
- Fewer workers moving to cities: The workforce contracted in 2012 and 2013 by 3.45 million and 2.27 million workers, respectively. The Japanese bank, Nomura, states that the number of migrant workers has halved from 12.5 million to 6.3 million over the past four years.
- Debt, debt and more debt: Total bank debt has grown from $14 trillion in 2008 to $25 trillion today. This represents the equivalent of adding the entire US banking system in the past 6 years. A recent S&P report in June announced that China now has the largest corporate debt market in the world (although there are some questions regarding the validity of data). Furthermore, the Bank for International Settlements, has indicated in its recent annual report that China’s financial system is “flashing red” as private sector debt to GDP is 23% higher than its long run norm.