Warnings mount on world's corporate debt, China crisis

"As the credit cycle ages, following years of record-setting bond issuance, there are growing concerns about signs of stress in corporate balance sheets," said the Institute of International Finance in Washington.

The body flagged a double threat: a five-fold rise in company debt to $25 trillion in emerging markets over the past decade; and record junk bond issuance in US and Europe, along with shockingly-irresponsible levels of US borrowing to buy back shares and pay dividends.

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It is a complex picture because large corporations are also sitting on record levels of cash, estimated at $1.6 trillion in the US, $2.2 trillion in Europe, and $2 trillion in Japan. What emerges is a split market, divided into cash-rich giants and an army of smaller companies up to their necks in debt. Total corporate leverage is 70pc of GDP in the US and 100pc in Europe.

Excesses in emerging markets are even greater, concentrated in Turkey, Brazil, Russia, and Indonesia, and above all in China where it has reached 175pc of GDP "This is the highest ratio in the world," said the IIF.

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The IIF said state-owned banks in China are being told to "evergreen" problem loans but this over-burdens the banking system itself, and may force the government to recapitalize lenders. While China weathered such a crisis in 1999, it is a very different picture today. "Given the environment of the slow growth amid collapsing productivity, such a strategy could lead to the scenario of Japan's ‘lost decade'", it said.

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The IIF estimates that China's total debt has reached 295pc of GDP, and is still rising fast. This is unprecedented for a developing economy that lacks deep capital markets or layers of accumulated wealth, and that now has a shrinking workforce as well.

Whether this experiment can withstand any serious degree of monetary tightening by the Fed is the neuralgic question hanging over the entire global economy.