McKinsey Global Institute's February 2015 report points out that the whole Western world and virtually all of the developing economies are piling up debt with little or no de-leveraging, lessons of the last global financial crisis notwithstanding -
Since 2007, global debt has increased by $57 trillion, or 17%. Reducing debt would mean implausibly large GDP growth or severe austerity policies. The regulated banking sector has de-leveraged and shadow banking has receded somewhat, but non-bank credit including corporate bonds continue to surge. While households in the United States, the UK, Ireland and Spain have reduced their debts, those in most other countries carry on borrowing even more. China's total debt has quadrupled from $7 trillion in 2007 to $28 trillion by mid-2014. The alarming situation calls for careful and innovative management and turnaround, but realistic solutions appear in short supply.
Download MGI Debt and not much deleveragingIn briefFebruary 2015
The report (Exhibit E3) shows that ranked by real economy debt-to-GDP ratio as at second quarter 2014, China ranks 22nd, much behind the United Kingdom (13th), the United States (16th), South Korea (17th), Austria (19th) and Canada (21st). China fares worse than Australia (23rd) and Germany (24th).
For a snapshot of how China grapples with her debt problem and a slowing economy, please visit Slowing Dragon, Worrisome for World, my feature article in the February 2015 issue of The Global Analyst, an Indian flagship global business magazine.
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