Goldman Is Not Worried China Credit Squeeze

China Credit Squeeze: Time to worry or listen to Goldman?

China analysts are ending 2016 in much the same way as they started it; by warning about the country’s rapidly deteriorating financial position.

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After several months of calm, in recent weeks China credit concerns have begun to resurface. Several media outlets have drawn attention to the increasing number of onshore defaults and given the rapid pace of credit growth this year, the company’s corporate sector is now even more indebted than it was heading into 2016.

China Credit Squeeze: Goldman Is Not Worried

As the Wall Street Journal reported at the beginning of this week, a gradual tightening of short-term credit by China’s central bank prompted a mini-rout in the country’s $8 trillion bond market. Rumours of a liquidity squeeze at some brokers (Guangxi-based brokerage Sealand Securities Co., which has $7.2 billion in assets suspended trading in its shares following reports that it had taken large losses related to bond swaps) also weighed on credit investors and the cost of interbank funding within China has leapt to 3% (seven-day repo) in recent weeks compared to the 18 month average of 2.5%. Furthermore, both the 5yr and 10yr China government bond yields have risen by around 70bps since the end of October.