The Asian Credit Bubble – the Next Blowup

November 8, 2012


Crises cluster by type and time, find Rogoff and Reinhart in their 800 year study of financial crises. A plethora of developed and emerging economies have housing bubbles of their own, seemingly just lagged a bit on U.S., but nevertheless on a similar continuum.

The credit bubble in Asia, and China in particular, is slightly different, in that much of the credit is extended to different actors. Corporations, often controlled by the families of politicians, in addition to local governments have been the large borrowers. In the U.S. and Europe, the debt was predominately concentrated in households and governments, although this is occurring in Asia as well.

Another difference is that unlike the explosion in international lending by European and United States banks, domestic Asian banks predominantly extended the credit. That’s changed somewhat recently, as you can see in the cross boarder claims (shaded army green in outer charts, green line in the middle) and growth in dim sum bond issuance.

Nevertheless, there are striking similarities in the rate of growth of credit extended to Asian borrowers and European borrowers pre crises.

Will this end in a similar spate of bad loans, pressure the equity of banks, or “is this time different?”


Select Asian Countries




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