TEMPO.CO, Jakarta - China is currently sitting on the verge of financial crisis as the country reaches its highest level of debt. Studies from Bank for International Services (BIS) stated that China’s credit to GDP (Gross Domestic Product) ratio had reached 209.8 percent in the first quarter of 2016, with a gap of 30.1 percent.
"A gap exceeding 10 percent is a sign of crisis, which can happen in the next three years," BIS stated as quoted by Reuters on Monday, September 19, 2016.
Within the last three years, China's debt to GDP gap ration has exceeded 10 percent. In march 2013, for example, the country’s debt to PDB ratio had reached 168.5 percent with a gap of 18.3 percent. Meanwhile in March 2015, the country's debt to GDP ratio increased to 192.5 percent with a gap of 24.2 percent. According to BIS, the Chinese economy had always been supported by debts as the global economy weakens following the European financial crisis.
The BIS report also stated that the increase of credit ratio in China was triggered by high disbursement of home ownership credits. Banks in China have been focusing on giving credits for the property sector, hoping for large returns. However, the Chinese property sector recently experienced a financial bubble and the country's banking sector is being haunted by the possibility of non-performing loans. The condition was made worse by declining performance of other business sectors.
Some even mentioned that the Chinese banking industry could experience a default. As a result, the government may have to provide a bailout of more than US$100 billion. However, analysts from UBS stated that China will not experience any financial crisis in the near future because of the country's domestic savings level is quite high, and because the Chinese government still has ownership of the majority of the financial sector.
"[Chinese] debt ratio against the GDP can even reached up to 300 percent before 2020," UBS stated.
Meanwhile, the Chinese central bank assured that it can still maintain a healthy capital for all financial institutions in the country despite of any slow down. However, experts stated that the strong capital should be accompanied by strict supervision on private banks to prevent them from disbursing loans indiscriminately.
FERY FIRMANSYAH
