Will the Chinese take over the world, or bust like all the rest? "There is of course a second and much more disturbing possible implication of spiking lending rates in China - which is that the slowdown in credit creation will lead to tumbling asset prices, widespread bankruptcies and the crippling of the banking and wider financial system. That has been a potential risk for some years, as China embarked on its bold economic experiment of fuelling growth with levels of investment almost beyond comprehension. Investment in China has been equivalent to around half of GDP, more than three times what it is in Britain (a not very relevant comparator), and about 50% greater than it was in Japan just before that economy went pop almost a quarter of a century ago. Of course the modernisation of China requires the roads, and railway lines, and airports and gleaming towers and shopping malls and homes that have been built. But it might not have needed them quite so quickly, if - as seems to be the case - some of them have been built shoddily and some of the developers and owners are going to struggle to keep up the financing payments on them. In other words. it is the financial corollary of the investment boom that seems most troubling right now. According to a recent and influential report by Fitch, outstanding loans by Chinese banks and shadow financial institutions were equivalent to 200% of GDP at the end of 2012, up from around 125% of GDP in 2008."
Posted on: Sun, 23 Jun 2013 08:48:06 +0000
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