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The instability of China’s credit-fueled, investment-focused growth strategy is—without a doubt—one of the greatest systemic risks facing the global economy according to Hedgeye Financials analyst Jonathan Casteleyn.

“The Chinese system has been propped up by debt-fueled growth,” Casteleyn explains in the video above from The Macro Show. “Eventually this very substantial contributor to GDP could start a banking crisis at some point.”

  • Chinese credit outstanding amounts to CNY 173.5 trillion ($26.2 trillion) as of September 30, 2017 (data released 10/15/2017), which is up CNY +19.1 trillion or +12.4% year over year.
  • Chinese non-performing loans amount to CNY 1,636 billion ($246 billion) as of June 30, 2017, which is up +13.8% year over year.

Systemic Risk Not Just China

China is the leader in global growth, and may be among the riskiest in terms of debt, but it's not just China.

Eurozone Risk

The euro has fundamental flaws and much of the European banking system is insolvent. A quick perusal of Target2 Liabilities shows that as of August (the latest data), Spain owes the creditor countries (primarily Germany) €384.4 billion.

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Italy owes it creditors €414.2 billion, and Greece €67.0 billion. Portugal also hit a record this month. It owes its creditors €79.0 billion. The ECB itself owes a record €212.9 billion.

To balance the book, debtors need to pay Germany a collective €852.5 billion, the Netherlands €107.5 billion, and tint Luxembourg €183.5 billion.

USA Risk

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US public debt to GDP rose from 62.5% to over 100% in five years. It has since stabilized, but that assumes an 8-year recovery continues for something like forever.

Moreover that debt assessment does not count unfunded liabilities like Social Security and Medicare, state and municipal liabilities, or pension plan liabilities that despite monumental gains are massively underwater.

For more on Eurozone systemic risk, please see Another Look at Capital Flight in Italy and Spain: ECB’s Target2 Explanation is False

Debt-based systemic risk is everywhere, not just China.

Mike "Mish" Shedlock