By Jacob L. Shapiro
China’s non-performing loans (NPLs) are inching upwards again. NPLs have been growing in the Chinese banking system since 2012, and according to the China Banking Regulatory Commission (CBRC), NPLs increased by roughly $75 billion in 2015 – double the growth in 2014. The ratio of NPLs to total loans is still relatively low – CBRC data from December 2015 put the percentage of NPLs at 1.67. (For frame of reference, our annual forecast identified Italy as a problem spot in 2016 because its NPL rate is around 17 percent.) But the increase in Chinese NPLs is accompanied by the declining profitability of Chinese banks, excessive capacity for Chinese steelmakers, coalminers and manufacturers, and a soft real estate market. China has been sweeping its NPL problem under the rug for decades now, but in the past has always been able to fall back on preternatural growth rates and booming demand for its cheap exports. This time, it will not be as easy.
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