China’s property developers are under duress again, re-igniting concerns about a debt crisis. But with a faltering economy and diminished confidence among households and companies, China debt watcher Charlene Chu, senior analyst at Autonomous Research, worries the ingredients are there for a broader financial crisis for the first time.
Barron’s reached Chu at her office in Washington, D.C. An edited version of our conversation follows.Charlene Chu: The macroeconomic climate is much worse than it’s ever been since reform and opening in the 1970s. It’s not just one issue, like the collapse of activity in the property sector.
There isn’t an ability to redeem most investment products at will like there is with bank deposits, which is a key reason things remain quiet for now. What we don’t know is whether recent trust defaults have made investors more reticent to roll their investments over when they mature. If so, we are likely to see more defaults like Zhongrong and Zhongzhi. If not, the system can remain fairly quiet and stable.