Amol Rajan: Be very afraid, a storm is coming in from China

I know what you’re thinking, as you sit exhausted, shoulders slouched, on the 17.32 to Guildford via Clapham Junction and (your stop) Weybridge, summoning the strength to give your teenager a roasting after he got suspended from school for selling dope in the middle of exam season.

You’re thinking, well at least it’s Thursday, which means I get to read Amol’s column in the Standard, and what a thrilling thing it would be if he were to examine the systemic threat to the global economy not from capitalism’s inherent contradictions but from the indebtedness of China’s banks. Well, just for you, and quite against my better judgment, here’s the analysis you were hoping for.

Essentially, we’re in trouble. After the financial crash, the authorities in Beijing unleashed one of the biggest stimulus packages anywhere, around four trillion yuan. The effect of this has been massive growth in the debt of its local governments. According to China’s National Audit Office, that debt has surged by 20 per cent every year for the past three years, to 10.6 trillion yuan by last summer.

Then there are China’s banks. According to a report on Bloomberg yesterday: “China’s biggest banks are poised to report the highest proportion of bad debts since 2009 after late payments on loans surged to a five-year high.” But that’s not half the trouble: China’s shadow banking system is estimated to account for 70 to 100 per cent of the country’s GDP. It is an impenetrable fog of dodgy deals and toxic debt, the complexity of which nobody can fully grasp.

On top of this, Morgan Stanley argues that China’s corporate debt is equal to the whole country’s national income, and China’s consumers are in more debt than ever. In fact, when you add it up, since 2008 China’s public and private debt has ballooned from 135 per cent of GDP to more than 200 per cent today. That growth in credit is faster than in Japan before 1990 — and the US in 2008.

And what on earth has this got to do with me, or Weybridge, or the pot-smoking teenager, I hear you ask? Well, more than you think. If there are two lessons to be learned from the crisis we are slowly emerging from, it is that the world is more interconnected than ever before, and an excessive reliance on debt-fuelled growth always, always comes back to bite you in the proverbial rear.

You can detect a complacency about prospects for the world’s economy in our financial press. But everywhere you look, from Latin America to Asia, and from the US to Europe, you see that bad debt, the very instigator of the worst financial crisis since the Depression, is rumbling again ­— only this time it’s happening much faster. Yes, some things are different. We’re better prepared (sort of), and have learned from recent experience. But we’re also even more exposed.

And it is China whose exposure is the biggest threat. Its fiendishly complex financial system, impenetrable shadow banks and horribly indebted local governments, companies and consumers might feel a very long way from your concerns this evening. But as if your teenager wasn’t stressful enough already, the coming crash could bring misery and turmoil to a doorstep near you. Even in lovely Weybridge.

Amol Rajan is editor of The Independent; Twitter: @amolrajan