China -Seeds Are Sown For Credit Crunch: Nomura

China needs to transform its economy from one driven by exports and capital-intensive industries to one that is driven by market forces, consumption, services and innovative private enterprises, believes a Nomura analyst. Rob Subbaraman argues in his February 2016 Global Markets Research report titled “Asia’s coming credit crunch” that a global manufacturing recession could be made in China.

China has “borrowed” growth from the future

Subbaraman points out that overcapacity and overleverage have become so large in China that they are bearing down on growth, as evidenced by falling returns on capital and rising debt servicing costs. The analyst believes headwinds to growth from a shrinking working-age population and pollution are also increasing. The Nomura analyst highlights that downside risks to his growth forecasts...