Is the Chinese Economy About to Fall Off a Cliff?: "... If China were a fully capitalist economy, the outcome would be eminently predictable: a 2008-style “Minsky moment” in which something bad happens, creditors panic, new lending dries up, and a crash ensues. China would join the United States, the United Kingdom, South Korea, Argentina, Mexico, and a long list of other countries that have experienced credit binges that ended badly. The complicating factor is that China, despite all its reforms, is still a country where the government controls large segments of the economy, including much of the financial sector. If there’s a crisis, optimists say, the government will step in and rescue lenders, writing off many of their bad loans. And the fact that people are aware of this will help prevent a crisis in the first place... "Even if a huge swathe of loans go bad, the consequence is unlikely to be a Lehman-style financial collapse,” the editors of The Economist argue in this week’s issue. “For that, thank the Chinese regime’s vice-like grip on its financial system.” The Conference Board analysts aren’t reassured. They argue that, as the rate of economic growth falls and bad debts pile up, there may well be too many stricken lenders for the state to rescue. And, even if the government does step in, the economic consequences will be severe. “While it is difficult to determine with precision when the breakpoint will be reached … a major deleveraging must occur at some point—it cannot be forestalled forever,” the report says. “Nor can China grow out of the problem. Anticipated nominal GDP growth comes nowhere close to being able to service the debt that has been accumulated since 2009. Something’s got to give....” (read more at the links above)
When? No one knows.
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