The Chinese government's latest economic incentives has had no effect on falling industrial production which is now below GFC levels. Also producer prices fell again marking a fifth straight month of contraction in the manufacturing sector.
Corporate debt defaults in China were non-existent until 2014, given an implicit government guarantee, when the first major company went insolvent and the Chinese government declined to bail them out. Defaults climbed steadily ever since with China courts handling 18,823 corporate bankruptcy cases in 2018, an increase of 97% from a year earlier. As ominous as this obviously is, corporate defaults have jumped even more dramatically so far this year.
Now Chinese courts have approved the first-ever personal bankruptcy agreement in China’s history, setting a precedent that will spread across the country as household debt levels rise amid the slowing economy.
Credit market jitters have already forced the bailout of several banks by Chinese regulators over recent months. Expect China's burgeoning banking crisis to explode moving forward as the mountain of debt (particularly local government, corporate and personal debt) deflates (defaults, deleverages, restructures) amid an economic slowdown and the deflation of credit fuelled asset bubbles throughout China.
