Who Has the Weakest Banks — the US or China?
In the US, government borrowing exploded during the pandemic, mostly in the form of short-term Treasury bills. To refinance those bills as well as the growing spending deficit, Washington will have to sell much more long-term debt — the question now is whether investors have the appetite.
This has created a bond rout, pushing the 10-year sovereign yield to the highest since 2007. That, in turn, has raised renewed concerns over consumer deposit flights and the value of banks’ securities holdings.
Chinese banks face the double whammy of property wobbles and fiscal woes.
Lenders’ exposure to local government debt and the real estate sector account for close to 40% of their total assets.
Meanwhile, the People’s Bank of China has been cutting interest rates . The banking sector’s net interest margin has fallen below 1.8%, a threshold that is regarded as necessary to maintain reasonable profitability.
In China banks can just pretend and extend
Last year, US and Chinese government debt hit 120% and 112% of their gross domestic product respectively, according to estimates from the International Monetary Fund.
Shuli Ren Bloomberg 23 August 2023
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