Readers at Maddog's Lair will have seen this before, and most all of the other Chinese crises as well, like the housing crisis, the debt crisis, the demographic crisis, the one child crisis, the faux economy crisis, the Hong Kong crisis, the wealthy exodus to foreign lands crisis. By whatever name China has been creating myriad crises over the past decade.
I have no idea if it will be the banking or another crisis which will ultimately get China, but it will happen, and the Chinese people having never been through a recession, let alone a serious recession, or depression, will be in for a treat. The CCP might be in for a more serious problem, revolutionary change.
We will have to wait, and see. The CCP has been very lucky so far, dodging most serious economic problems, but in doing so it has created a number of serious problems. The banking crisis is but one of them.
"The Bank for International Settlements warned in its quarterly report that China’s "credit to GDP gap" has reached 30.1, the highest to date and in a different league altogether from any other major country tracked by the institution. It is also significantly higher than the scores in East Asia's speculative boom on 1997 or in the US subprime bubble before the Lehman crisis."
It is different because China remains a poor country, no where near as rich as Japan, in the 1990s or America in 2008. While both of those countries had fully developed safety nets, and a wealthy populace to help absorb the collision with a serious recession, China has nothing similar. The weight of this crash will ultimately fall on the individual, alone. This will likely look more like the US Great Depression than the Great Recession. The US had weathered a deep but short depression less than a decade before the 1929 depression, and so people understood, although did not enjoy the event. The Chinese have had no negative economic events in decades. They are unprepared.
"Yet it is China that is emerging as the epicentre of risk. The International Monetary Fund warned in June that debt levels were alarming and “must be addressed immediately”, though it is far from clear how the authorities can extract themselves so late in the day.
The risks are well understood in Beijing. The state-owned People’s Daily published a front-page interview earlier this year from a “very authoritative person” warning that debt had been “growing like a tree in the air” and threatened to engulf China in a systemic financial crisis.
The mysterious figure – possibly President Xi Jinping – called for an assault on “zombie companies” and a halt to reflexive stimulus to keep the boom going every time growth slows. The article said it is time to accept that China cannot continue to "force economic growth by levering up" and that the country must take its punishment."
Good luck Xi, you are gonna need it.