IS CHINA HEADING TOWARDS A DEBT CRISIS?

Bloomberg reported that Chinese banks' troubled loans swelled to almost 4T Yuan or US$628B, the equivalent of Sweden's GDP.

Banks' profit growth also fell from 13% to 2% in the first nine months of the year.

Bad debts continued to pile up recently when China Shanshui Cement Group went into default and prompted its lenders to demand immediate payments.

China's corporate debt is a potential disaster, totaling US$16T. Increasing default, especially by state owned companies which had gone on a borrowing binge in the last few years could shake confidence in the Chinese bond market and economy as a whole.

A recent report by the FSB (Financial Stability Board) shows that China's 4 major banks need  to raise almost US$400B in additional capital in order to meet new standards set by the board.

That is why the recent rally in the stock market and prior it, the bond market, has unnerved any economists and analysts. China's weakness remains, and thus, any rally could proved to be a flash in the pan and is not sustainable.

With China being mired in a hard landing and the EU in a state of low growth despite the QE, and at the other end of the table, a potential interest rate hike in the US, we could potentially see another recession in the not too soon future.