Not our words but Societe Generale’s, or at least their China macro strategist Wei Yao, who believes credit risk is worse than official non-performing loan data suggests.  So much worse that — while government intervention will prevent an outright crisis — a “multi-year and bumpy” landing is now expected by SocGen.

Non-performing loans are still at a fairly low level of 0.9 per cent across China, notes Wei, although about three times that amount are “special mention” loans, or those in doubt but still performing. Rates can also rise quickly, thanks in part to China’s tangled shadow banking system: in one year, Wenzhou went from the lowest rate of any Chinese city at 0.37 per cent to 2.85 per cent at the end of July. Read more