With China’s shadow banking system’s collateral chain’s collapsing amid government crackdowns on the ponzi, the ‘desperate for liquidity’ borrowers have increasingly turned to global capital markets’ suckers to fund the next malinvestment. As China’s currency becomes more internationalized and yields around the world collapse (thanks to central bank largesse), demand from investors has driven, for the first time ever, the Chinese corporate bond market has overtaken the United States as the world’s biggest. As S&P warns, this is raising global credit risk as “as much as 10% of global corporate debt is exposed to the risk of a contraction in China’s informal banking sector,” or around $4-$5 trillion, “causing overall corporate risk to increase globally,” and it’s not expected to slow anytime soon.
S&P warns
The Chinese corporate bond market has overtaken the United States as the world’s biggest and is set to soak up a third of global company debt needs over the next five years, according to rating agency Standard & Poor’s, underscoring the growing risk China’s debt market is imposing on the global financial system.
Chinese corporate borrowers owed $14.2 trillion at the end of 2013 versus $13.1 trillion owed by U.S. corporations with the switch in rankings taking place a year earlier than it had expected, S&P said on Monday.
But that is not good news for the world’s investors…
China, the world’s second-largest economy is currently financing a quarter to a third of its corporate debt through its shadow banking sector and this had global implications, S&P said.
“This means that as much as 10 percent of global corporate debt is exposed to the risk of a contraction in China’s informal banking sector,” the agency said, estimating this at $4 trillion to $5 trillion. “With China’s economy likely to grow at a nominal 10 percent per year over the next five years, this amount can only increase.”
…
“As the world’s second-largest national economy, any significant reverse for China’s corporate sector could quickly spread to other countries.”
