KBRA Releases Research – China’s Balance Sheet Risks: Assets

Kroll Bond Rating Agency (KBRA) releases research which discusses China’s ability to disrupt global macro conditions from both sides of its balance sheet ledger. This report is the first in a two-part series on China’s balance sheet risks to the global economy and credit markets. The second report will focus on China’s liabilities and the inherent risks.

In Part 1, we explore the asset side of China’s balance sheet, focusing on the country’s role as the largest international creditor country and its wider lending practices through the ambitious Belt and Road Initiative (BRI) project. BRI loans involve “muscular” lending contracts, expensive conditions, and strategic investments that heighten global and creditor-specific risks. KBRA’s Sovereigns Group continues to monitor developments in China closely for their impact on credit risk both inside and outside the Asian country, as well as for reverberating impacts on global sovereigns and general global macro conditions.

Key Takeaways

• As the world’s largest creditor country, China enjoys influence over global economic and credit market conditions.
• Despite being the second largest foreign holder of U.S. Treasury securities, the risks this poses to the U.S. are shrinking as China’s share of holdings has declined, while its options for risk-free alternatives are limited.
• China’s ambitious cross-continental BRI project exacerbates risks alongside global geopolitical challenges for creditors.
• BRI debtor countries could end up in a worse position because of environmentally unfriendly investments, which is also a risk for creditors.

Part 2 in the series will focus on China’s liabilities and the related inherent risks to the global economy and credit markets.

Click here to view the report.

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About KBRA

KBRA is a full-service credit rating agency registered in the U.S., the EU and the UK, and is designated to provide structured finance ratings in Canada. KBRA’s ratings can be used by investors for regulatory capital purposes in multiple jurisdictions.

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