China’s hurdles keep surfacing. If China pops (or should we say when China pops), won’t the US be the safe harbor again, not that the global economy won’t suffer?
The biggest threats to China’s financial stability are shadow banking and loans to LGFVs, Bank of China Ltd. Chairman Xiao Gang wrote in a commentary in the China Daily on Feb. 19. China should pay special attention to such risks, the Economic Information Daily reported on Jan. 22, citing Huang Shuhe, vice chairman of State-owned Assets Supervision and Administration Commission. Moody’s Sees Defaults as PBOC Warns on Local Risks – Bloomberg
The next scary risk for global investors is China’s huge credit bubble, according to contrarian investor Marc Faber.
Faber, editor and publisher of The Gloom, Boom & Doom Report, told CNBC that shadow banking practices in China pose a broad financial threat.
“Whether they [Chinese government] can ensure continuous growth will depend on reforms and how to deflate the colossal credit bubble we have in China. This is going to be a huge problem because we have so much underground credit, questionable loans outstanding and questionable investments,” he said. Marc Faber: China’s Shadow Banking System Is a House of Cards
The same three warning lights that preceded America’s real estate crash and financial crisis are now flashing over China, two economists say, leaving the government limited time to get out of trouble.
In a research note published on Saturday, Nomura economists Zhiwei Zhang and Wendy Chen outline the way that elevated property prices, a rapid build-up of leverage and a slide in the country’s potential growth rate could lead to a systemic crisis.
…adding to the likelihood of a crisis is China’s declining potential growth rate. It is not easy to calculate this number, which represents the maximum speed the economy can grow without generating excess inflation, but even analysts more optimistic than Nomura’s agree that it’s falling, driven by factors such as a shrinking working-age population. That gives China’s policymakers a lot less leeway to stimulate the economy than they have enjoyed in the past. Economists: China Mirrors U.S. on Eve of Financial Crisis