CHINA’S TRIPLE-D NIGHTMARE OF DEFLATION, DEVALUATION AND DEFAULT
China is at mounting risk of a financial crisis this year as growth sputters and deflationary pressures trigger a wave of defaults.
This is the warning issued by Bank of America Merrill Lynch. The US lender is telling clients that a confluence of forces is threatening to chill the speculative mania on the Shanghai stock exchange and to expose the underlying fragility of China's $26 trillion edifice of debt.
"A credit crunch is highly probable," says the investment bank in a clients-only report entitled "Focus on the Triple D: Deflation, Devaluation, and Default," written by David Cui, Tracy Tian and Katherine Tai. Mr. Cui, Head of China Equity Strategy at BofA Merrill Lynch, is the No. 1 ranked China strategist by Institutional Investor magazine.
They say the country's highly-leveraged companies cannot safely withstand President Xi Jinping's drive to stamp out moral hazard and wean the country off excess credit, warning that the mix of slower growth and excess debt "could prove lethal for the financial system."
Analysts from other financial institutions agree.
