I don’t know if you find the graph above as concerning as I do. It illustrates the growth of U. S. bank assets and Chinese bank assets from 2008 to the present. Here’s a slightly longer timeframe to put the increase in U. S. bank assets over time into a little bit better perspective:
We posit that this large rise was in part driven by the carry trade offered up by QE – China banks and corporates issued substantial forex-denominated bonds, and borrowed straight loans from international banks. We recognize the caveat that correlation does not imply causation. The USD655bn rise in China debt issuance is highly correlated to the Fed’s balance sheet since late-2008. As Chart 11 shows, the rise in China debt issuance of USD 655bn has (along with FDI and the C/A surplus), boosted international reserves by USD1,773bn since late-2008. Also, as Chart 11 shows, the USD1,773bn rise in China international reserves mirrors the rise of USD2,585bn in the EM monetary base. Lastly, the rise of China’s monetary base of USD2,585bn correlates well with the USD10.9tr rise in China’s broad money expansion.
Considering the very large proportion of non-productive loans believed to be on the books and the notorious opacity of Chinese banks it will be interesting to see how this unfolds.