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China's credit binge increases risk of banking crisis, says watchdog 

September 19, 2016

Reuters via The Guardian

China’s huge credit binge has increased the risk of a banking crisis in the world’s second biggest economy in the next three years, according to global financial watchdog.

An early warning of financial overheating – the gap between credit and GDP – hit 30.1 in China in the first quarter of this year, a report from the Bank for International Settlements (BIS) said on Sunday.

Any level above 10 suggests that a crisis will occur “in any of the three years ahead”, the BIS said. China’s indicator is way above the second highest level of 12.1 for Canada and the highest of the countries assessed by the BIS.

Debt has played a key role in shoring up China’s economic growth following the global financial crisis. Outstanding government, corporate and household debt reached 255% of GDP in 2015, fuelled in large part by a surge in company borrowing, up from 220% just two years earlier.

China’s bank lending in August more than doubled from the previous month, with much of the gain down to strong mortgage demand. China’s top banks are lending more to homebuyers and developers than at any time since at least the global financial crisis. Read more

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