Goldman: Still In The Aftermath Of The Credit Boom

Goldman Sachs “expect China's non-financial debt/GDP to rise to 289% at the end of 2023, from 284% in 2022. That said, despite the rise in leverage in recent years, we believe policymakers remain focused on reining in "grey rhino" risks in the financial system - obvious risks that may lead to large credit problems.”

• “Specifically, we see two areas being targeted by policymakers, namely the property sector and local government indebtedness. These are areas that have seen very rapid credit growth over the past 15 years, and potentially carry systemic implications.”
• “Our baseline policy scenario is for a continuation of the "piecemeal" easing approach that aims to limit further downside, but is insufficient to reflate the property sector, as China continues on its multi-year path to tackle the "grey rhinos".”
• “The most likely path is for further credit differentiation amongst Chinese credits. Policy easing should support stronger credits, whilst continuing credit cleanup efforts should lead to more defaults to emerge. It is, therefore, important to stay up in quality for China credit.”