AEP is, of course, Ambrose Evans-Pritchard of the UK Telegraph. If you’ve woken up bright and cheery ready to have a crack at the new week … AEP will soon set you right and bring you back to Earth :-).
AEP says the Bank of International Settlements (BIS), “the world’s banking watchdog” warns that “Foreign loans to companies and banks in China have tripled over the last five years to almost $900bn and may now be large enough to set off financial tremors in the West, and above all Britain”.
- BIS says loose money policies by Western central banks since the Lehman crisis had cut the cost of foreign funding in East Asia, tempting firms to borrow heavily in dollars
- The risk is that this process could go into reverse as the US Federal Reserve shuts the spigot, triggering off a dollar liquidity shortage across the region with even bigger knock-on effects than during the East Asian crisis in 1997-1998
- Talk of Fed `tapering’ in May this year offered a foretaste of trouble to come. It caused a ‘sudden stop’ in capital flows and a surge in dollar borrowing costs across much of Asia. The squall blew over when the Fed began to pull back again, but the BIS said the issue has not gone away
- the loan-to-deposit ratio for foreign currencies in China has doubled from a well-behaved level of around 100pc in 2005 to nearer 200pc today
The Chinese state holds the world’s largest foreign reserves at $3.7 trillion and the country has capital controls, so there is little danger that China itself could suffer the sort of currency crisis that hit Korea, Indonesia, or Thailand in the 1990s
More at the article: BIS sees risk of 1998-style Asian crisis as Chinese dollar debt soars
