Nomura First Major Bank To Predict China Default Calculates Total debt to GDP at 309%; BIS Sounds The Alarm

When Jim Chanos called China Dubai times 1000 in 2010 ago many chuckled – now that opinion has slowly become the consensus or at least a matter of serious debate – What is perhaps most interesting about Nomura’s September 14 report, “China: Solving the debt problem,” is the fact the solutions involve a China Default. It is rare – if not a historic first – for a major bank to say the world’s second-largest economy is likely to default on its debt.

China Default – With total debt to GDP at 309%, something is likely to give and default “only practical way”

Discussing government and corporate debt peril in public forums is typically muted if not outright censored. Although hedge funds have addressed the China default debt topic, for a major establishment-bound bank to actually discuss the grotesque details and predict a default in a major economy is something unusual.

But that’s just what Nomura’s research team, led by Yang Zhao, did.

Nomura, which estimates China’s total debt – government and corporate debt – is RMB211.8 trillion or 309% of GDP. The vast majority of this debt is corporate, which from a leverage perspective looks better. Non-financial sector accounted for RMB158.5trn (231% of GDP, up by 92pp from 2007) and the financial sector for RMB53.3trn (78% of GDP, up by 49pp).

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