China's 'Rapid' Debt Buildup May Portend A Looming Financial Crisis: New York Fed

Zinger Key Points
  • A downturn for the Chinese economy would affect almost every sector.
  • A number of Chinese companies list American depositary receipts in U.S. exchanges.
China's 'Rapid' Debt Buildup May Portend A Looming Financial Crisis: New York Fed

China’s recent debt buildup following the Covid-19 pandemic has researchers from the Federal Reserve Bank of New York wondering if the country can avoid a financial crisis in the years to come.

The consequences of a Chinese crisis may impact the entire globe, as a bad turn for the world’s second-largest economy would likely replicate across most markets.

China had already been playing around with high levels of credit as a way to navigate global and local financial instability. The country acquired substantial debt as a strategy to steer through the years following the 2008 financial crisis and had managed to bring its debt ratio under control by 2018.

Today, it's a different scenario. The pandemic and zero-COVID approach led to the country acquiring almost 30% of its GDP in debt in 2020 alone.

“While other major economies in the world are now tightening their monetary policies, expectations are for overall debt in China to rise again in 2022 to stabilize growth," New York Fed international policy advisors Hunter Clark and Jeffrey Dawson wrote.

Related: China Surprises With Exports Data: What's Triggering A Slowdown Despite Weak Yuan?

By the end of 2021, China’s total credit was almost 290% of its GDP for the nonfinancial sector, including corporate, household and government credit.

The corporate sector has been the largest borrower, taking credit for 153% of GDP. Pandemic-related stimuli were in part responsible for this quick rise in corporate borrowing.

Household debt is also rising to uncomfortable levels. According to the authors, China’s household debt (compared to GDP) is comparable to that of developed economies, standing above the median for the economies in the OECD.

The majority of this household debt — which equals 62% of the country’s GDP — comes from mortgage loans.

China's Financial And Political System

Clark and Dawson suggest that “rapid buildup of debt is often followed by financial crises or at least extended periods of much slower economic growth.”

China’s financial and political system has allowed it to navigate this debt crisis with more success than a classic democratic and capitalist economy would have.

The Communist Party’s ability to influence its own economy is very strong, backed by state ownership of most banks, and several ongoing measures to protect itself from external shocks.

However, like any economy, China is not immune to financial crises.

The current rise in credit is one mark that China’s economy could be contracting. 

Capital-To-Output Ratio

Another factor is the growing capital-to-output ratio. This is the measure of how much the country’s GDP is growing in relation to the capital it injects into the economy, meaning that it’s becoming more expensive for China to grow at the same rates that it has grown in the past.

In a similar way to many other growing economies, China’s population is aging, adding extra weight to an increasingly shrinking working age population.

Current disruption in global supply chains are also a cause for concern for Chinese trade. This could cause China’s export engine to “downshift to a growth rate similar to that of world trade, or perhaps even lower,” say the analysts.

Which Stocks Might Be Affected?

A downturn for the Chinese economy would affect almost every sector, as China has become a major trading partner for most economies on earth, including the U.S. and the European Union.

China is the single largest supplier of imports for the U.S. and the third largest importer of U.S.-made products, making it America’s largest trading partner.

The latest data available puts 758,000 U.S. jobs in question depending on imports and exports with China.

The shock, however, would be felt more directly on Chinese companies and those depending directly on a healthy Chinese economy.

A number of Chinese companies list American depositary receipts in U.S. exchanges. Their stock prices would likely be affected by a financial bust. These include:

  • E-commerce, retail, Internet, and technology giant Alibaba BABA
  • Electric vehicle makers Nio NIO, LiAuto LI and Xpeng XPEV
  • Multinational online travel company Trip TCOM.
  • Internet and AI giant Baidu Inc. BIDU
  • Farming and food tech developer Pinduoduo PDD.

Image: Shanghai Skyline by Shutterstock.

Posted In: Federal Reserve Bank of New YorkHunter L. ClarkJeffrey B. DawsonAnalyst ColorAsiaNewsPoliticsGlobalMarketsAnalyst RatingsGeneral

11 Best Black Friday Deals on Amazon

11 Best Black Friday Deals on Amazon

The best Black Friday deals from Amazon are still coming hard and fast because the holiday is not yet upon us and the mega-retailer prefers to keep consumers on the hook for as long as possible—spending as much money as possible. 

To that end, here are some of the best Black Friday deals from Amazon that you might want to consider today.

Calphalon 10-Piece Pots and Pans Set

Regular Price: $172

Sale Price: $138.88

Calphalon’s 10-Piece Pots and Pans Set is designed with stainless steel, stay-cool handles along with pour spouts. The nonstick surface is PFOA-free and built with hard-anodized aluminum that is both durable and conducts heat extremely well. The set includes 2 fry pans, a sauce pan with cover, saute pan with cover and large stock pot with cover.

Apple AirPods 2nd Generation

Regular Price: $144

Sale Price: $85.49

The 2nd Generation AirPods from Apple connect to all Apple devices and give you an enhanced listening experience. Plus, they come with a case that keeps them safe and allows you to charge them in a secure environment. With over 24 hours of battery life, access to Siri and easy setup, you can start listening to your favorite tunes or podcasts today.

Adidas Ultraboost 21 Running Shoes

Regular Price: $129.98

Sale Price: $89.98

The Adidas Women’s Ultraboost 21 running shoe is perfect for anyone who likes a short run, maybe a 5K, half marathon or more. Coming in several colors and styles, you can slip these shoes on, enjoy the cushioned outsole, sink into the supple insole and secure laces.

Ninja AF101 Air Fryer

Regular Price: $129.99

Sale Price: $97.83

The Ninja AF101 Air Fryer allows you to crisp, roast, reheat and even dehydrate food products faster and cheaper than ever before. It has a 4-quart capacity and offers a wide temperature range along with several time settings so that you can customize each dish to your needs. Plus, all the parts are dishwasher safe.

Beats Solo3 Wireless On-Ear Headphones

Regular Price: $199.95

Sale Price: $99

Beats by Dr. Dre are among the best headphones on the market, and the Solo3 Wireless On-Ear Headphones include the Apple W1 chip, Class 1 Bluetooth and 40 hours of battery time. These headphones even have a built-in microphone and offer an adjustable fit so that you can be comfortable whether you’re listening to an Android or iOS device.

Hoover Power Scrub Deluxe Carpet Cleaner

Regular Price: $198.98

Sale Price: $175.98

The Hoover Power Scrub Deluxe Carpet Cleaner allows you to keep your home spotless and clean up after your pets. The cleaner comes with the Hoover Paws and Claws Deep shampoo and a storage mat to keep the floor dry once it’s put away.

LG CordZero Auto Empty Cordless Stick Vacuum

Regular Price: $999.00

Sale Price: $851.71

The LG CordZero Auto Empty Cordless Stick Vacuum and Wet Mop All in One Tower is designed to work in homes with several pets or children and clean up all the messes that life brings. The battery lasts up to 2 hours, and there’s an extra removable battery that gives you even more cleaning time and power.

Breville Fresh and Furious Blender

Regular Price: $278.60

Sale Price: $199.95

Breville, a top name in blenders and juicers, offers the Fresh and Furious Blender, featuring 50-ounce capacity, Vac Q technology, pre-programmed cycles, LCD display and lid with pull ring. With the Fresh and Furious Blender, you can make everything from a smoothie to a soup and everything in between.

Hot Tools Professional 2000 Turbo Ionic Hair Dryer

Regular Price: $89.99

Sale Price: $55.63

The Hot Tools Professional 2000 Turbo Ionic Hair Dryer is designed for professional use, but it works perfectly in the home. With 1875 watts of power, 6 heat and speed settings and a lightweight design, you can easily style your hair and utilize the diffuser, cut back on the frizz and stretch the 8 ft cord for maximum functionality.

Columbia Heavenly Long Hooded Jacket

Regular Price: $160

Sale Price: $97.38

The Heavenly Long Hooded Jacket from Columbia is designed to be light for everyday use, but it’s heavy enough to protect you from the cold. The plush fleece lining, security pocket, water resistant fabric, 2-way zipper, and zippered hand pockets make the jacket both protective and functional.

ConAir InfinitiPro Hair Dryer

Regular Price: $49.99

Sale Price: $29.99

ConAir is one of the biggest names in hair and beauty, and the InfinitPro is an 1875 watt hair dryer designed for professionals with ceramic technology. The dryer comes with a diffuser and concentrator, and it allows you to blow out your hair just the way they would at the salon.

Deals the Experts Are Hoping For

Experts believe that Amazon’s Black Friday sale could linger for quite some time. It all started with the Prime Early Access sale on October 11 and 12. Previously, Amazon has offered the “Epic Deals” sale that ran through late October. 

This is to say that any sale could come up at any time. 

Even so, those monitoring Amazon are looking forward to a few potential deals, including:

  • Apple Watch
  • AirPods (any generation)
  • MacBook Pro
  • Large, underpriced TVs
  • Amazon Echo
  • More small home appliances (Dyson or Shark vacuums, Instant Pots, etc.) 

While these predictions are based on last year’s Amazon Black Friday Sale, it’s important to remember that most Black Friday sales are fairly consistent and push the products that are most likely to sell.

 

Featured image sourced from Shutterstock

Posted In: Partner ContentGeneral