January 21st, 2015
from the Dallas Fed
Analysts and the financial press have scrutinized the buildup of private sector borrowing in China over the past few years. Debt accumulation seems eerily familiar to what occurred in past credit booms, most notably in the euro zone periphery in the mid-2000s and in East Asia a decade earlier.
There was no buildup of leverage in China prior to the global financial crisis in 2008, though there was a rapid rise in leverage afterward, mainly the result of government investment-led stimulus efforts that drove China's postcrisis recovery. The major banks in China are state owned, and the government directed them to increase lending in the dark days of the global financial crisis to drive a credit-fueled investmentled recovery.