China's decision to re-leverage its economy is a major U-turn, and could have serious consequences

Having spent two years trying to de-leverage — reduce debt piles — in an attempt to rebalance its economy China appears to have changed its policy. Its a risky decision given the already staggering levels of leverage that exist in the Chinese economy.

The surge in January was particularly pronounced in short term corporate debt. New corporate loans reached 2.6 trillion yuan in January, though around 1.1 trillion yuan were either short-term loans or bill financing, according to UBS.Global debt is not yet at financial crisis levels — but could be set for an explosion with China leading the way

This comes despite the fact that much of the Chinese market was closed for Lunar New Year celebrations in February suggesting that lending, and therefore leverage, is back on the agenda again this year.

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