Tuesday, February 25, 2014

China in trouble

China faces additional risk stemming from a credit-fuelled investment boom, with excessive borrowing by local governments, state-owned enterprises, and real estate firms severely weakening the asset portfolios of banks and shadow banks. 

Most credit bubbles this large have ended up causing a hard economic landing, and China’s economy is unlikely to escape unscathed, particularly as reforms to re-balance growth from high savings and fixed investment to private consumption are likely to be implemented too slowly, given the powerful interests aligned against them.