Asia Leverage Looks Over-Extended: Ahya

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March 17 (Bloomberg) –- Morgan Stanley Chief Asia Economist Chetan Ahya discusses China’s debt and the risks associated with it with Angie Lau on Bloomberg Television’s “First Up.” (Source: Bloomberg)

China is on the radar of my next guest.

He sees downside risk because of rising debt.

He has been looking at leverage asia wide.

What does leverage mean?

You could tie up the two, the fact that there is a debt problem.

You have to ensure you have some type of monetary easing as well as a weaker currency.

We have seen what has happened in the u.s. and we know what japan is trying to do.

You have to have the currency that is supportive and not dynamic.

-- in that dynamic.

A weaker yuan helps with exports, right?

That is also an extraneous benefit.

Pmi has slipped, exports have been week, china's market share -- trying to match the weak economy and you want to try to help that would weaker currency.

In the background, you have pbi diffraction -- ppi differentiation.

Are you forecasting a weaker yuan?

We do think that kerry is still there in chinese interest rates -- we do think the carry is still there in chinese interest rates.

As we have seen from the way they have moved, it will not be dramatic.

Interest rates in china are higher than the u.s. that leads us to the original problem of shadow banking on this high leverage debt situation that china finds itself in.

It's for and -- its first bonds default or seven.

-- march 7. what it will mean is the debt to gdp has increased a lot.

The debt load that you can do to support your domestic demand will be much slower.

It has moved up dramatically in the last six years.

To ensure that you do not have some sort of going forward, they will try to slow the debt.

That will have implications on medium growth numbers.

What are the potholes to watch out for from china?

The most important numbers to watch, if you look at japan and the u.s., when you are trying to manage the dynamic and you slow your debt growth.

There will be downsize risk to domestic demand.

The second one is ppi.

When you print the credit and you throughout the system the nominal gdp growth, it has been lower in china.

The a, -- the economic numbers are telling you the credit multiplier is weak.

Ppi is the second number that will tell you how things are going.

The borrowing cost in china is seven percent.

Your real borrowing cost is nine percent.

This is telling you the debt is compounding at a pace faster than income and that is never a good side -- good sign.

Try to bring that up to positive territory.

The widening of the trading band gives some will go room for the pboc and the government of china.

What else can they do?

They can cut lending rates.

That is another way to manage your real borrowing costs to ensure the corporate sector is not burdened too much.

It will ensure the good borrowers -- the private sector should be able to take back and

This text has been automatically generated. It may not be 100% accurate.

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