The 'fear in China' boiled down into two perfect sentences
The biggest issue in economics right now is China: Its growth is slowing. Its population is ageing. Its debt - $28 trillion - is getting worse.
And its central bank is running out of monetary weapons to fight those issues. That's a nasty mix that has everyone worrying how the decline of China might hurt everyone else.
But it's also incredibly complicated, involving the links between state-owned enterprise debt, the renminbi, commodity prices, and whether any of those things might drag down Western economies if it all goes wrong in China.
Nonetheless, Societe Generale Global Head of Economics Michala Marcusse elegantly summed it all up in two sentences and this chart, which shows how state-owned and private companies in China have become increasingly unprofitable over the last four years:
SocGen
Marcusse asks, if China's inability to pay its debts triggers a financial crisis in the country, "What are the channels of spill-over globally?" Here's her answer:A miserable cocktail of China hard-landing in the secondary sector (industry and construction), a slump in commodities, exacerbated by a further build-up of excess supply and a stronger dollar, have put balance sheets of commodity producers and several major emerging economies under significant pressure. Fear is both that things in China get even worse and that a domino of defaults will engulf commodities and EM [emerging markets], ultimately contaminating the full credit universe.
She puts the chances of a "hard landing" in China at 30%.