With the Chinese government tightening credit, the massive leakage from the formal banking sector into the ‘shadow system’ ultimately risks sinking the country’s financial system. For quite some time, analysts of China have been puzzled by a strange phenomenon: the country’s public and financial institutions are decidedly subpar by any international standard, but its economic growth rate is anything but. This puzzle can only be explained by two conclusions: either China has been fudging its growth data, or Chinese institutions aren’t as bad as outsiders commonly think. There is, however, a third possibility.
Snapshot Financing the Middle Kingdom's recent building boom has been expensive: Estimates put local government debt alone at between $800 billion and $2 trillion, or around 13 to 36 percent of GDP. If the real estate bubble pops, financial and social crises will follow. Condos under construction in Guangzhou. (Photo: Slices of Light / flickr) For years analysts have warned of a looming real estate bubble in China, but the predicted downturn, the bursting of that bubble, never occurred -- that is, until now.
Exit from comment view mode. Click to hide this space Comments View/Create comment on this paragraph BEIJING – The slowdown of China’s economy has captured the headlines in recent weeks. Whether it is a permanent or temporary adjustment, the Chinese authorities have much work to do in laying the groundwork for strong economic performance in the medium and long term.
Exit from comment view mode. Click to hide this space Comments View/Create comment on this paragraph BAHRAIN – China watchers are waiting to see whether the country has engineered a soft landing, cooling down an overheating economy and achieving a more sustainable rate of growth, or whether Asia’s dragon will crash to earth, as others in the neighborhood have before it. But some, particularly American politicians in this presidential election year, focus on only one thing: China’s trade balance. Comments View/Create comment on this paragraph True, not long ago the renminbi was substantially undervalued, and China’s trade surpluses were very large. That situation is changing.
Exit from comment view mode. Click to hide this space Comments View/Create comment on this paragraph BEIJING – The first principle that I learned when I started focusing on China in the late 1990’s is that nothing is more important to the Chinese than stability – whether economic, social, or political. Comments View/Create comment on this paragraph Given centuries of turmoil in China, today’s leaders will do everything in their power to preserve stability. Whenever I have doubts about a potential Chinese policy shift, I examine the options through the stability lens.
24 November 2011 Last updated at 00:30 GMT By Justin Yifu Lin Chief economist, World Bank Justin Yifu Lin's new book is called "Demystifying the Chinese Economy" Whether we are on the verge of an "Asian Century" or not, one thing is clear: there has already been a dramatic shift in the geographic centre of the global economy. China is now front and centre, and its role as a leading dragon can be beneficial for growth prospects for the world economy. The world desperately needs engines of growth right now, and fortunately - with continued strong and pragmatic economic policy making - China can provide that impetus.
Exit from comment view mode. Click to hide this space Comments View/Create comment on this paragraph BEIJING – Despite repeated assurances by European Union leaders, after more than two years, there is still no light at the end of Europe’s debt-crisis tunnel.
Hours after a creditor and his gang of tattooed thugs hustled Zhong Maojin into a coffee shop in Wenzhou, he says he wouldn’t yield to their demands. They wanted to take over one of the pharmacies in a chain he’d built by borrowing from private lenders. Instead, he made an offer of traditional retribution in this eastern Chinese city, known for loan sharks who have sometimes meted out violence to bad debtors.
Exit from comment view mode. Click to hide this space Comments View/Create comment on this paragraph NEW HAVEN – For the second time in three years, global economic recovery is at risk. In 2008, it was all about the subprime crisis made in America.
Exit from comment view mode. Click to hide this space Comments View/Create comment on this paragraph WASHINGTON, DC – China had an advanced and prosperous civilization for millennia until the eighteenth century, but then degenerated into a very poor country for 150 years. Now it has resurged to become the world’s most dynamic economy since launching its transition to a market economy in 1979. What drove these fateful changes? Comments View/Create comment on this paragraph In my recent book Demystifying the Chinese Economy , I argue that, for any country at any time, the foundation for sustained growth is technological innovation.
Exit from comment view mode. Click to hide this space Comments View/Create comment on this paragraph MANILA – This is the year of the “Black Water Dragon,” an astrological cycle that indicates change, but with a measure of calm, sensibility, and prudence.
Exit from comment view mode. Click to hide this space Comments View/Create comment on this paragraph BEIJING – From July 2005 until this past December, China’s renminbi (RMB) appreciated steadily. But then the RMB fell unexpectedly, hitting the bottom of the daily trading band set by the Peoples’ Bank of China (PBoC) for 11 sessions in a row. Though the RMB has since returned to its previous trajectory of slow appreciation, the episode may have signaled a permanent change in the pattern of the exchange rate’s movement.
Exit from comment view mode. Click to hide this space LONDON – At first, it seems difficult to grasp: global capital is flowing from poor to rich countries. Emerging-market countries run current-account surpluses, while advanced economies have deficits. One would expect fast-growing, capital-scarce (and young) developing countries to be importing capital from the rest of world to finance consumption and investment. So, why are they sending capital to richer countries, instead?
Exit from comment view mode. Click to hide this space Comments View/Create comment on this paragraph BEIJING – In recent months, bearish sentiment about the Chinese economy has surged, owing largely to three conjectures. First, China’s housing market is on the brink of collapse. Second, China’s fiscal position will worsen rapidly because of massive local government debt. And, third, the collapse of underground credit networks in bustling cities such as Wenzhou will lead to a broad financial crisis across the country.