Why China's 'zombie' companies are a big threat
- China's economy is beset by huge public and corporate debt problems which threaten to derail the country's growth story, according to JPMorgan.
- Economic growth in China has been steadily slowing and could get even lower meaning the world's second largest economy won't overtake the US any time soon.
- The key risk - disposing of "zombie" state-owned companies - means the economy could be forced to adopt a zero interest policy, JPMorgan said.
The US-China trade war is in more of the headlines, but there's an even greater problem for the world's second largest economy.
"The biggest concern regarding financial stability and the sustainability of economic growth has been China's ballooning debt problem, especially in the corporate sector," according to a note published by JPMorgan.
Chinese corporate debt is among the highest in the world - it's a stunning 162% of GDP.
The country's debt will take serious and prolonged policy changes to rectify, said the economists led by Chief China economist Haibin Zhu. China's slowdown comes alongside other economic red flags - from its economy including poor PMI figures, lower exports, an aging workforce, and spiralling household debt.
JPMorgan pushes back on estimates that China will soon overtake the US as the world's biggest economy, predicting that China's growth potential will slow from the current 6.5% level to 5.5% in 2021 through 2025 and 4.5% in 2026 through 2030.
"This means that China will remain the second largest economy much longer than expected," the economists said.
"The transition to slower potential growth could be volatile and requires balancing reforms," they wrote. "This will reshape China's role in the global economy."
The key risk - disposing of "zombie" state-owned companies - means the economy could be forced to adopt a zero interest policy, JPMorgan said.
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