A new index which shows how vulnerable is China

Mark Whitehouse
In what part of the world could be the outbreak of the next financial crisis? If taken into consideration, a new index of credit…
risk, then, China seems to pose a key nomination.
The economic crisis of 2008 has helped leaders throughout the world to realize that they needed a better system of early warning. For this reason, the Bank for International Settlements –a sort of Central Bank for central bankers – began to publish more data on the flows of money around the world. These include the indicator of loans to the GDP which focuses on loans given to households and enterprises as a percentage of GDP. The greater the index over the long-term trend in a particular country, the more likely it becomes for the borrowers to express their inability to pay their obligations -a situation which tends to lead to bankruptcies, banking problems, but wider depressions.
In retrospect, it seems that the index would be highly effective in predicting, warning of the most recent crises in the US and Europe. In the united states, the loans exceeded by about 12 percentage points the long-term average as a percentage of GDP in mid-2007, just when he started to pop the “bubble” of mortgage loans. The average percentage of Greece, Italy, Portugal and Spain reached a high of 34% in early 2009, just before the outbreak of the debacle of the european sovereign debt. Here is how it looks:

At this time, the indicators for the united states and Europe have negative values, which reflects their effort to restore growth, fighting even with the extremes of the previous “explosion”. In China, on the contrary, the difference in the loan-to-GDP from long-run average is at its highest level since at least 1995 (the year that started the recording of the data): to the end of March had surpassed 30%. The following is a comparison with the countries of the G20:
It should be noted, however, that China is an unusual case, as it has huge foreign exchange reserves and the level of state control that could postpone the day of account, or to distribute the weight of many years. Even in the countries of Southern Europe, the difference remained at high levels for almost a decade before something bad happens. However, when a country that depends to such an extent by borrowing in order to support its development, will come, and the time of the give.
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