The most pressing issue that the global economy faces is not the US-China Trade War but the mountain of Chinese corporate debt, now called by Moody`s Analytics the “biggest threat” that we now face. Last week Fitch Ratings and now Moodys are both flagging the serious state of affairs in which the number of private companies in China that have defaulted on their debt is at a record high this year and still climbing. Mr Zandi, an analyst who knows this market well is calling the Chinese corporate debt the biggest “fault line” for the global economy and it seems that things will get much worse before improving.
China is clearly aware of this problem and Beijing is now working to reduce its reliance on debt by tightening regulations to speed up deleveraging – the economic expansion in China has been overdone, according to many experts, mainly using loans and debt. Building massive building and shopping malls with 30 to 40 percent of empty floor space is more common now in China than only 3 years ago. The biggest risk now is the slowing economy, mainly driven by a maturing economy (slowing is natural) but also from the pressure caused by the US President and his tariff attacks. China has slowed from 7.5% GDP to 6.5% and analysts predict that it will be below 6.0% in 2020.
A slowing economy with massive debt is a combination that will likely result in economic hardship in the future.