Arthur Kroeber

It is illegal for industrial companies to own a bank.

The bigger ones are allowed to have internal financing subsidiaries, but they can only sort of manage financing flows within the group.

And it is also illegal for banks to load up on shares of industrial companies.

So you have a distinct financial system and industrial system.

which means that the particular type of macro problem that Japan got into is very, very unlikely to occur in China today.

So you have huge debt problems, right?

So the property developer is very overleveraged, huge problem.

You've had a massive property crash in China over the last five years.

That is a big, big problem.

You have local governments that borrowed a lot of money, invested in infrastructure, which is now delivering very low returns.

They have a big debt problem.

So you have very substantial debt problems in China that have significant negative macro consequences, but they're all isolated and they can be dealt with in China.

sort of one by one.

If you look at the industrial sector, it's not very highly leveraged.

Debt levels, in fact, are not high.

Most private companies in China have learned for many years they couldn't get access to bank credit because the banks only wanted to lend to state-owned enterprises, which were a secure –

They had physical collateral and they had a state guarantee.

Private companies for years have learned to make do basically financing their investment out of retained earnings and their leverage ratios are not that high.

They're creeping up now over the last few years because of the big industrial policy push.

But fundamentally, they're in a very different position than the Japanese companies were.