Kroll Bond Rating Agency (KBRA) releases the second report in a two-part series on China’s balance sheet risks to global credit markets. In KBRA’s view, the liability side of China’s balance sheet shows high indirect risks due to the level of nonproductive debt in the country, although direct risks to international creditors remain largely contained because of low nonresident debt holdings.

In Part 1, which focuses on the asset side of the balance sheet ledger, we discuss China’s role as the world’s largest international creditor country, its wider lending practices through the ambitious Belt and Road Initiative (BRI) project which include “muscular” lending contracts, expensive conditions, as well as strategic investments that heighten global and creditor-specific risks.

Key Takeaways

• China’s economy resembles an advanced economy more than an emerging markets (EM) economy in its debt load and composition, but not in terms of debt sustainability.
• China’s level of debt distress is graver than headline defaults suggest.
• Global direct risks are contained by moderate holdings of Chinese bonds by nonresident investors, amounting to about 3% of total Chinese government bond issuance, although this is set to change with the inclusion of these securities in global bond indices.

Click here to view the report.

Related Publications

Access for free at www.kbra.com

• China’s Balance Sheet Risks: Assets
• KBRA Podcasts: USD, UST and Sovereign Risk
• Sovereign Credit Risk: Taking Stock Mid-Pandemic
• U.S. Stimulus: Uneven Impact on LATAM
• China’s Imperial Ambitions

About KBRA

KBRA is a full-service credit rating agency registered in the U.S., the EU and the UK, and is designated to provide structured finance ratings in Canada. KBRA’s ratings can be used by investors for regulatory capital purposes in multiple jurisdictions.

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