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China’s real credit risk lurks in shadow finance 

May 31, 2017

Financial Times

"The downgrading of the world’s second-largest economy’s sovereign debt rating should rank as an important event. But financial markets greeted China’s downgrade last week by Moody’s, the credit rating agency, with their version of a nonchalant shrug. Chinese domestic bond prices remained steady and Hong Kong’s main stock index actually rose during the week.

But the non-event should not lull observers into complacency. China not only has one of the most highly leveraged corporate sectors in the world — with company debts equivalent to about 170 per cent of gross domestic product — it is also engaged in risky manoeuvres to cut an overgrown shadow finance sector down to size."

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