, Columnist
China's Bad Credit
Unless the government starts letting the market price risk properly, debt will continue to grow.
Credit default swaps aren't the answer.
Photographer: Frederic J. Brown/AFP/Getty ImagesThis article is for subscribers only.
There is good news when it comes to China’s scary and still-growing pile of debt: At least the government recognizes the problem. Its attempts to mitigate those risks, however, seem doomed to fall short.
The government’s recent decision to create a market for credit default swaps is a case in point. The idea, as elsewhere, is to give banks and investors a means of pricing and trading the risk of Chinese companies defaulting on their debts. The need is obvious: Official measures of non-performing loans are worsening, while unofficial estimates say their share may have reached anywhere from 8 percent to 20 percent. Anything that spreads that risk should improve financial stability.