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China Leverage Seen Rising Through 2016

China’s debt is poised to keep expanding faster than the economy through at least 2016, testing the limits of a credit-driven growth model that’s already exceeded the imbalances in Japan before its lost decade.

The combined ratio of government, corporate and household debt to gross domestic product is set to climb to 236.5 percent in 2016 from 225 percent last year, based on median estimates in a Bloomberg News survey of economists and analysts. Asked when the ratio will peak over the next decade, the largest proportion of respondents said 2018 or 2019.

“China needs to watch out — it has pushed the envelope,” said Louis Kuijs, chief China economist at Royal Bank of Scotland Group Plc in Hong Kong, who formerly worked at the World Bank and International Monetary Fund. “It needs to work on mitigating the risks, mitigating the excesses.”

China’s credit-to-GDP ratio rose to 187 percent in 2012 from 105 percent in 2000, compared with Japan’s increase to 176 percent in 1990 from 127 percent in 1980, JPMorgan economists wrote in a report last year.

“If the bulk of that increase will stem from business as usual,” with credit going to heavy industry or state-owned enterprises, “then a further buildup will increase the risks,” said Shen Jianguang, chief Asia economist at Mizuho Securities Asia Ltd. in Hong Kong.

Read more at: Bloomberg