A towering debt mountain looms behind China's market gyrations

Hong Kong

LOST in all the Chinese stock and currency market gyrations, policy missteps and mixed data is this economic reality: The government is constrained by a credit bubble that has ballooned to US$28 trillion in an economy growing at its slowest pace in 25 years.

Policy zig-zags have left investors divided over how wedded President Xi Jinping and Premier Li Keqiang are to financial sector reform and shifting their US$10 trillion-plus economy from one powered by investment and exports to one more focused on consumption and services. China has appeared to backtrack on pledges to make its management of the yuan more market driven and there's uncertainty over the government's willingness to remove stock price supports imposed during a US$5 trillion sell-off last summer. Amid the confusion, the benchmark CSI 300 Index, down 14 per cent in 2016, has revisited the lows of last year's rout and pressure on the currency continues.