A warning indicator for banking stress rose to a record in China in the first quarter, underscoring risks to the nation and the world from a rapid build-up of Chinese corporate debt. China’s credit-to-gross domestic product “gap” stood at 30.1%, the highest for the nation in data stretching back to 1995, Bloomberg reports. Readings above 10% signal elevated risks of banking strains. The gap is the difference between the credit-to-GDP ratio and its long-term trend. A blow-out in the number can signal that credit growth is excessive and a financial bust may be looming. Some analysts argue that China will need to recapitalize its banks in coming years because of bad loans. However, state control over the financial system may mitigate the risk of a banking crisis.
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