The Bank of International Settlements — the "central bank for central bankers" — has released its latest annual report, warning that the looming debt crises in China, Hong Kong and Thailand could precipitate an abrupt collapse, or, as BIS monetary and economic department head Claudio Borio put it, "That end may come to resemble more closely a financial boom gone wrong, just as the latest recession showed, with a vengeance."
While the last global financial crisis was triggered by sub-prime debt lent to American households, the Chinese debt load is spread through both corporates and households. Chinese corporate debt has almost doubled since 2007 to reach 166 per cent of GDP, while household debt jumped in the last year to 44 per cent of GDP.
Meanwhile the BIS's so-called credit-to-GDP gap indicator shows debt is building up far above long-term averages. The measure, an "early warning indicator" for a country's banking system, shows China, Hong Kong and Thailand are extended far beyond other major economies.
Next global crash could come "with a vengeance", central bankers have warned
[Jasper Jolly/City AM]