The big question China so-called experts are all mulling these days, dear readers, seems to be debt. The outside view is that in terms of the scale of China’s debt problem, in the words of the WSJ, we have now left the solar system. China’s credit-to-gross domestic product “gap” stood at 30.1% in the first quarter, higher than the levels in East Asia before the 1997 Asian Financial Crisis, or in the United States before the outbreak of the 2008 Global Financial Crisis. Readings above even 10% are supposed to signal high risks.

Fitch Ratings, in an excellent report this week, said that “Chinese policymakers will continue to use strong credit growth to meet near-term GDP targets, which will increase the size of asset-quality problems in the financial system.” New investment continues to fall, but the property market is going gangbusters and there is an impression in some quarters that the economy is recovering.

Fiscal responsibility, however, seems to be in short supply, which can’t bode well for the longer term. Local governments are backsliding on debt issuance, and the SCMP had a good story about the banking regulator in Henan Province – long our top pick for a place where a financial problem could occur – having told state banks to hand out at least RMB 450 billion in new loans this year to help bolster the local economy. On the other hand, maybe they have nailed it – the perfect system. Who knows? Have a good weekend!