Every New Yuan of Chinese Debt Creates About .5 Yuan in Nominal Growth

May 12, 2014

By Knowledge Leaders Team in Uncategorized

The Chinese nominal GDP growth rate has fallen by about 66% since the peak in 2007, from 22.9% to 7.8% in Q1 2014. Meanwhile, total loan growth has basically remained flat aside from the surge in 2009. The logical deduction is that it’s taking ever more debt to create a lower level of nominal growth. For example, the multiplier on new debt is now well below 1, and probably closer to .5. In other words, every yuan of new debt obligation creates about .5 yuan in nominal growth.

Tags > China, Debt

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