The following is an excerpt from Enda Curran and Chris Anstey | October 29, 2017 | Bloomberg.com |
It used to be that when America sneezed, the world caught a cold. This time around, it’s the risk of a sickly China that poses a bigger threat.
The world’s second-largest economy is now trying to ward off the sniffles. While output is still growing at a pace that sees gross domestic product double every decade, the problem remains that much of that has been fueled by a massive buildup of credit.
Total borrowing climbed to about 260 percent of the economy’s size by the end of 2016, up from 162 percent in 2008, and will hit close to 320 percent by 2021 according to Bloomberg Intelligence estimates. Economy-wide debt levels are on track to rank among "the highest in the world," according to Tom Orlik, BI’s Chief Asia Economist.
That path may be what prompted outgoing People’s Bank of China Governor Zhou Xiaochuan to warn of the risk of a plunge in asset values following a debt binge, or a "Minsky Moment," earlier this month. Given that China is forecast by the International Monetary Fund to contribute more than a third of global growth this year, controlling China’s debt matters far beyond its borders.
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