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A side effect of China’s debt binge

Westend61 / Getty Images
Westend61 / Getty Images

China has been on a debt binge lately, fueling its stabilizing growth via hefty lending to national and local state-owned enterprises . Growing concerns about China's debt levels are reflected in the latest update to our BlackRock Sovereign Risk Index (BSRI) rankings. China dropped two notches on a modest BSRI score decline in the fourth quarter, and now ranks 35 out of the 50 countries we track. China's decline was partly driven by a deterioration in its Financial Sector Health , one of the four key components of our index. Rising credit growth has inflated the size of the country's banking sector relative to gross domestic product (GDP), raising China's sovereign risk profile, the BSRI suggests. China's overall rank has fallen by nine notches since the same quarter a year ago. See the chart below.

Never has a big economy piled up so much debt so quickly (see this interactive graphic ). Yet this is a slow-burning problem, as Isabelle Mateos y Lago notes in her recent post on the driver of China's more stable growth . Each country's final BSRI score and ranking is based on four categories: Fiscal Space (40%), Willingness to Pay (30%), E xternal Finance Position (20%) and Financial Sector Health (10%). Fiscal Space assesses whether a country is on a fiscally sustainable path, while External Finance Position examines how leveraged a country might be to macroeconomic trade and policy shocks outside of its control. Financial Sector Health measures how healthy a country's financial sector is, and Willingness to Pay gauges how able and willing a country is to pay off its debt.

Other key movers in this update

Fiscal Space External Finance Position Willingness to Pay Fiscal Space
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interactive graphic Richard Turnill is BlackRock's global chief investment strategist. He is a regular contributor to The Blog .

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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