Inflated Chinese business lending set to burst?

A hard landing could be on the horizon.

Well this isn't good. The Wall Street Journal has a story about the growing credit bubble in China. Dinny Mcmahon and Colum Murphy write:

Analysts at Standard Chartered PLC estimate that Chinese corporate debt was equivalent to 128% of gross domestic product by the end of 2012, up from 101% at the end of 2009. In a 2011 research paper, economists at the Bank for International Settlements found that when a country's corporate debt exceeds 90%, it becomes a drag on growth.

While accessible loans may be good news for China's struggling companies, it could be bad news down the road. Some economists worry such heavy debt in China's financial system could create serious problems for the economy if borrowers are unable to meet their obligations. Soured loans could ultimately force companies to consolidate—which could lead to politically unpalatable job losses—or force leaders into some sort of expensive bailout.

The news is yet more evidence that a significant proportion of China's growth could be illusory. Chinese infrastructure spending is notoriously wasteful, leading to the creation of ghost cities, collapsing bridges and impossible promises.

So much of the rest of the world's economy is based on Chinese growth remaining well about 5 per cent that the prospect of that not happening — a so-called "hard landing" — is usually held up as the third of the big economic disasters waiting to happen, after a US debt-ceiling default and a Eurozone breakup.

If the private economy is as unsustainably inflated as the state sector is, that hard landing is looking uncomfortably possible.

A Chinese labourer works at a saltern in Hami. Photograph: Getty

Alex Hern is a technology reporter for the Guardian. He was formerly staff writer at the New Statesman. You should follow Alex on Twitter.

Photo: Getty
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Why is Marine Le Pen getting more popular?

The latest French polls have people panicked. Here's what's going on. 

In my morning memo today, I wrote that Emmanuel Macron, who is campaigning in London today – the French émigré population makes it an electoral prize in of itself – was in a good position, but was vulnerable, as many of his voters were “on holiday” from the centre-left Socialist Party and the centre-right Republican Party, and he is a relatively new politician, meaning that his potential for dangerous gaffes should not be ruled out.

Now two polls show him slipping. Elabe puts him third, as does Opinionway. More worryingly, Marine Le Pen, the fascist Presidential candidate, is extending her first round lead with Elabe, by two points. Elabe has Le Pen top of the heap with 28 per cent, Republican candidate François Fillon second with 21 per cent, and Macron third with 18.5 per cent. Opinionway has Le Pen down one point to 26 per cent, and Macron and Fillon tied on 21 per cent.
(Under the rules of France’s electoral system, unless one candidate reaches more than half of the vote in the first round, the top two go through to a run-off. All the polls show that Marine Le Pen will top the first round, and have since 2013, before losing heavily in the second. That’s also been the pattern, for the most part, in regional and parliamentary elections.)

What’s going on? Two forces are at play. The first is the specific slippage in Macron’s numbers. Macron ended up in a row last week after becoming the first presidential candidate to describe France’s colonisation of Algeria as a “crime against humanity”, which has hurt him, resulting in a migration of voters back to the main centre-right candidate, François Fillon, which is why he is back in third place, behind Le Pen and Fillon.

Le Pen has been boosted by a bout of rioting following the brutal arrest of a 22-year-old black man who was sodomised with a police baton.

As I’ve written before, Le Pen’s best hope is that she faces a second round against the scandal-ridden Fillon, who is under fire for employing his wife and children in his parliamentary office, despite the fact there is no evidence of them doing any work at all. She would likely still lose – but an eruption of disorder on the streets or a terrorist attack could help her edge it, just about. (That’s also true if she faced Macron, so far the only other candidate who has come close to making it into the second round in the polling.)

For those hoping that Macron can make it in and prevent the French presidency swinging to the right, there is some good news: tomorrow is Wednesday. Why does that matter? Because Le Canard Enchaîné, the French equivalent of Private Eye which has been leading the investigation into Fillon is out. We’ve known throughout the election that what is good for Fillon is bad for Macron, and vice versa. Macron’s Algeria gaffe has helped Fillon – now Macron must hope that Fillon’s scandal-ridden past has more gifts to give him. 

Stephen Bush is special correspondent at the New Statesman. His daily briefing, Morning Call, provides a quick and essential guide to British politics.