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Investment News and Views, Direct from Our Team.

Goldman Sachs Report on China

by Marc Lerner

Goldman Sachs has released a new report on the rapid credit growth China has experienced since 2008. Whilst reporting exact figures for anything in China is practically impossible (with conflicting estimates abounding), it contains some illustrative charts on the size and likely future of the debt blowout:

 

The report discusses the recent trend towards more of the credit coming from (less regulated and more expensive) shadow credit – a term for various lending mechanisms that exist outside the formal banking system. It also points out that problems in the shadow credit system can easily leak into the financial system more generally. For example, just recently the interbank rate – similar to the cash rate here in Australia – had this happen to it:

 

Meanwhile, stories of the property bubble in the form of ghost cities in China continue to pop up more and more in the mainstream media – for example, here is a great article from the Wall Street Journal. How long this kind of explosive and dangerous credit growth can continue is difficult to say precisely, but it easy to see that it cannot continue forever. At Valor Private Wealth, we prefer to avoid assets exposed to something as potentially disastrous as this, as we see the risk involved as being far too much for our clients’ money.