Danger signals as China's state sector leverage reaches new heights
China's state companies are more highly leveraged than sub-investment grade 'high yield' companies in either the US or the European Union
If there is one lesson everyone learned from the 2008 crisis, it is that a rapid rise in leverage can signal the risk of an approaching financial crash.
So it should be no surprise today that hordes of market-watchers are poring over the data from the mainland and wondering just how dangerous the recent build-up of debt really is.
According to estimates from the US investment bank Morgan Stanley, the mainland's total debt has now reached 232 per cent of gross domestic product, with corporate debt hitting 106 per cent of GDP.
That puts the corporate debt to GDP level higher than that of the United States and on a par with crisis-hit Europe.
But as Viktor Hjort, a fixed income analyst at Morgan Stanley, pointed out in a research report last week, GDP is a blunt instrument when it comes to gauging credit risks.
That is partly because the data is unreliable, but also because GDP tell us little about corporations' ability to service their debts.