China’s Secret to Preventing a Banking Crisis
An overcautious approach to regulation pays off in the current environment and Beijing is an example of why.
Being prudent.
Photographer: Qilai Shen/BloombergAs a global banking crisis envelops financial markets, China, one of the world’s most indebted nations, remains relatively calm. It’s thus worth asking how Beijing has managed to avert the chaos, while US regulators were blamed for being too lax toward regional lenders, contributing to the collapse of SVB Financial Group.
It’s no small accomplishment. For years, foreign investors fretted over China’s Minsky moment, or its Lehman moment — depending on who was talking. With a debt pile hovering at around 300% of gross domestic product, the nation feels like a ticking time bomb. Its real estate sector is overleveraged; so are its municipal finances. Last year, local governments spent 10.8% of their revenue on interest payments alone, according to CLSA Ltd estimates.