New normal in China, but old debts to repay
Mainland economic shift may mean rethink on risk over using dollars for yuan investments
"A painful and challenging process" is how, on September 10 in Dalian, Premier Li Keqiang characterised the transition of China's economy to a "state of a new normal".
Given China's need to manage a mountain of debt accrued under the old normal at a time when prior assumptions about the direction of the yuan have been shattered, "a painful and challenging process" may prove to be an understatement.
According to data from the Bank for International Settlements published on September 13, for emerging market economies as a whole, total debt as a percentage of gross domestic product rose to 167 per cent at the end of last year, up 50 basis points from 2007.
While that is quite a rise, it is nothing compared to the separate figures for China.
For China itself, the BIS-calculated total debt-GDP ratio reached 235 per cent, an increase of 82 basis points since 2007.
The bulk of the debt increase during that period was taken on by China's corporate sector in a global environment that encouraged Chinese borrowers to load up on dollar-denominated debt for deployment in yuan-denominated investments.