Brussels: ‘The Bank for International Settlements’ (BIS) has warned that the Chinese banking industry is on the brink of a major calamity. The credit-to-GDP gap; and the debt of the Chinese economy will be the two factors responsible for this crisis, said the warning. This warning issued by ‘The Bank for International Settlements’ to China is the third major warning against China’s banking sector while the International Monetary Fund (IMF) and the World Bank also had previously said that the Chinese economy could be in trouble due to the operations in the banking sector.
‘The Bank for International Settlements’ known as the main organisation of the central banks around the world, published a report about impending dangers in the banking sector on Sunday. The report named ‘Early warning indicators of banking crisis: expanding the family’ warned that irregularities and ignorance in the banking sectors can become reasons for economic disasters. The household and international debt are both important factors for such crisis as noted in the report.
Both the forms of debts have been considered and the ratios worked out to forecast the dangers in the banking sector. On this dual basis, ‘The Bank for International Settlements’ has warned that the figures concerning China and Hong Kong, indicated dangers in the banking sector. China’s credit-to-GDP ratio is 16.7% whereas its debt as compared to its income is above 5%.
In case of Hong Kong, the credit-to-GDP ratio was 30.7%. While, the debt compared to the income is above 7%. As the Hong Kong economy is largely connected to the Chinese economy, considering the two together there are indications of the Chinese economy heading for a major blow because of the dangers in the banking sector.
In the last two years, various organisations in the world have been consistently warning about the Chinese banking system, its proportion, the loans given through the banking sector and the shocks to the economy due to this. In 2016, ‘The Bank for International Settlements’ in its warning to China, had said that this mounting Chinese debts can deliver a blow to the international economy.
Subsequently, the International Monetary Fund also had warned that the proportion of the Chinese economy had crossed the limits of a developed economy. As per the information given by the International Monetary Fund, the proportion of the Chinese banking system had grown to 310% of the GDP. Whereas, the extent of the Chinese debt had climbed to a staggering 317%, claimed an international financial institution last month.