China’s Credit Boom: Taking credit for nothing


IN HIS work on China’s economy, Zhang Zhiwei observes what he calls the “5:30 rule”. That is not the time he clocks off each day: he is a hard-working economist for Nomura, a Japanese bank. But the rule does refer to a time of reckoning of sorts. Mr Zhang points out that several economies have suffered financial crises after their stock of credit grew by about 30% of GDP in a span of five years or less. Japan fell foul of this rule in the latter half of the 1980s; America broke the limit in the years before 2007.

Now Mr Zhang is worried about China. At the end of 2008 total credit to firms and households (and to non-profit organisations) amounted to less than 118% of GDP, according to a new measure calculated by the Bank for International Settlements (BIS). By September 2012 the total stood at over 167%.


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