Nation's debt has just turned a corner

There are fears about China's growth prospects given the recent bad news about weak credit demand, high real interest rates and tight liquidity. But we at Standard Chartered see three reasons for at least some optimism:

First, China's debt-to-GDP ratio stabilized in mid-2014, albeit at a relatively high 251 percent of GDP. While China's dramatic debt increase in the past five years grabbed headlines worldwide, as the ratio leapt nearly 100 percentage points from 155 percent of GDP, the fact that the ratio has begun to stabilize has not received much attention.

This is an important milestone in China's debt turnaround following years of excess. Over the past five years, total credit growth in China was on average 8 percentage points faster than nominal GDP growth - way beyond the point at which credit growth becomes inefficient for any economy.