China Has a $1.2 Trillion Ponzi Finance Problem

  • Some 45% of new debt will be used to pay interest: Hua Chuang
  • `Ponzi’ finance was seen by Hyman Minsky as unsustainable

Chinese borrowers are taking on record amounts of debt to repay interest on their existing obligations, raising the risk of defaults and adding pressure on policy makers to keep financing costs low.

The amount of loans, bonds and shadow finance arranged to cover interest payments will probably rise 5 percent this year to a record 7.6 trillion yuan ($1.2 trillion), according to Beijing-based Hua Chuang Securities Co., whose lead fixed-income analyst was top-ranked by China’s New Fortune magazine in 2012 and 2013. Dubbed “Ponzi finance” by Hyman Minsky, the use of borrowed funds to repay interest was seen by the late U.S. economist as an unsustainable form of credit growth that could precipitate financial crises…

China Has a $1.2 Trillion Ponzi Finance Problem

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