Charlene Chu Says China’s Credit Risks Worsening

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Charlene Chu
Charlene Chu, head of research at Autonomous Research Asia and former Fitch Ratings Ltd. analyst. Source: Fitch Ratings via Bloomberg

Charlene Chu, the former Fitch Ratings Ltd. analyst known for her warnings over China’s debt risks, said that the dangers are increasing as the outlook for the nation’s growth deteriorates.

“We’ve got the biggest debt bubble that the world has ever seen and credit is continuing to grow twice as fast” as the economy, Chu, 43, a partner of Autonomous Research Asia Ltd., said in an interview in Hong Kong today with Bloomberg Television’s Angie Lau. “We’ve got deflation looming on the horizon.”

China’s accumulation of debt from record borrowing has prompted some analysts to draw comparisons with Japan before its “lost decade” of economic stagnation and with Asian nations tipped into crisis in the late 1990s. Debt in China was equivalent to 251 percent of gross domestic product, according to a June estimate from Standard Chartered Plc.

The Shanghai Composite Index fell 2.2 percent as of 1:48 p.m. local time today, leaving the benchmark down 0.7 percent this year after surging more than 50 percent last year.

People with more positive views on China “believe that the country can grow its way out of the problem, but mathematically that’s impossible when something is twice as big as something else and growing twice as fast,” Chu said.

China’s economy may expand 7 percent this year, down from an estimated 7.4 percent last year, according to median forecasts in Bloomberg News surveys. The nominal growth rate may be 7.75 percent, slumping from as high as 20 percent during the past decade, Chu said.

Financial Rescues

Asked about the prospect of financial rescues, Chu said that the government has the capacity and the willingness to provide support; “the issue really comes down to how messy it gets.”

Albert Edwards, global strategist at Societe Generale SA, said in 2013 Chu was “a heroine” and “deserves a medal of honor for her stark warnings about the Chinese credit bubble.” She left Fitch in January last year.

Chu’s warnings that the nation’s debt could lead to a crisis preceded Fitch’s downgrade of China’s long-term local-currency debt rating in April 2013, the first cut by one of the top three rating companies in 14 years.

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