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Who's Afraid of China?

Mark Whitehouse writes editorials on global economics and finance for Bloomberg View. He covered economics for the Wall Street Journal and served as deputy bureau chief in London. He was previously the founding managing editor of Vedomosti, a Russian-language business daily.
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Given global investors' increasing concerns about the Chinese economy, it isn't surprising that they've been pulling money out of the country. That said, the latest international banking data suggest there's a significant exception: U.S. banks.

QuickTake China's Debt Bomb

After the global economy hit bottom in 2009, banks started piling into China like never before. Their total claims on the Chinese government and companies -- including loans and securities -- increased by almost $1 trillion from mid-2009 to mid-2014, according to data from the Bank for International Settlements. More recently, though, growing worries about China's ability to bear all that debt have driven a reversal. From June 2014 to June 2015, total claims on China declined by $34 billion (adjusted for exchange-rate changes). Here's how that looks in historical perspective, as a share of global gross domestic product:

The pullback has been widespread, with banks in just about every major developed country reducing their claims on China. According to BIS data (not adjusted for exchange-rate changes), U.K. banks' claims were down $24 billion, or 11 percent, in mid-2015 from a year earlier. Euro-area banks trimmed theirs by 16 percent, Japanese banks by 6 percent. The only notable increase came at U.S. banks, which boosted their exposures by $22 billion, or 25 percent. Here's how that looks, in nominal dollar terms:

Could U.S. banks be playing the role traditionally attributed to German banks in financial crises -- late to the party, and left to pay the bill? If so, it doesn't yet look like the immediate losses could be too damaging: U.S. banks' total exposure, at $110 billion, is tiny compared to their assets and equals less than 1 percent of the country's GDP. By that measure, the U.K. should be more worried: At $186 billion, its banks' claims on China amount to almost 7 percent of GDP. 

Still, one has to wonder what U.S. banks are seeing that others don't.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

To contact the author of this story:
Mark Whitehouse at mwhitehouse1@bloomberg.net

To contact the editor responsible for this story:
James Greiff at jgreiff@bloomberg.net