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Thursday, 29 October 05:25 (GMT -05:00)

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China’s Debt Bubble May Trigger Another Global Financial Crisis

The Chinese economy keeps on slowing down as China’s debt bubble is growing. International experts are concerned about that. They are afraid of a new global financial crisis, Market Leader reports. The thing is, the Chinese economy is not growing fast enough anymore. Beijing has to admit the economic slowdown. The entire international expert community is now closely watching this slowdown and expressing their concerns about China’s economic prospects amid the mentioned economic slowdown and inflating debt bubble.




Once again, the experts are concerned that the current and future situation in the Chinese economy may eventually trigger another major economic crisis. In the meantime, the Chinese government is trying to calm everyone down. They assure us that China has switched to a new economic model but is still the locomotive of the entire global economy.
Industrial production, investments, retail sales, consumer activity, and many other sectors showed an unexpectedly low pace of growth in the first half of the year, which triggered some kind of panic in financial markets, Masterforex-V Academy reports.
International experts say that there is a reason to be worried since China makes up for more than 30% of the global economic growth. Given the fact that, China is the world’s second-biggest economy, any changes in there may trigger a global wave, the so-called domino effect.
The Chinese authorities are making excuses by saying that China has shifted from fast growth to moderate growth while optimizing the structure and transforming the growth model. The new model is designed to benefit from domestic consumption, service sector, and innovation. This means, China is gradually moving away from betting on exports and investments.
To prove that the Chinese economy is safe and sound, local media report about higher domestic consumption and bigger activity in the local service sector. Some of the problems are said to be temporary since Beijing is willing to sacrifice short-term high growth for a brighter longer-term economic future. Amid, the slowdown, China is boasting a pretty fast pace of growth when it comes to innovation. Local media report that China is now number 17 in the world in the national innovation index.
IMF experts are afraid of a debt boom


It’s interesting to note the fact that the sweet words came into play a few days after another IMF report on the current economic situation in China. The experts warn about the risk of a debt boom in China. They say that the economic growth in China has been seriously dependent on debt. That’s why they are worried that if another major crisis breaks out, the Chinese economy will suffer a lot and trigger the domino effect, thereby affecting all other economies. Despite the risks, the IMF improved the forecast for the Chinese GDP for 2017 in the mentioned report. They expect the Chinese economy to gain 6,7% this time and 6,4% next year. The previous forecast was 6,4% and 6,2% respectively. However, they warn that if the GDP growth turns out to be stronger, this may trigger higher debt burden. They remind us that the credit financing of the non-financial sectors has more than doubled over the last 5 years. Along with that, the ration between the debt and the GDP has already increased by 60% all the way up to 230% GDP. Given the similar cases in the history, the experts say that this is a dangerous curve for the Chinese economy and consequently for the entire global economy. In particular, the experts working for the IMF analyzed 43 debt booms around the world prior to arriving at this conclusion. In each of the cases, the mentioned ration was well above 100%. In almost all of the cases, the boom ended up with a serious economic slowdown or even an economic crisis. The experts are also concerned about the fact that consumption is low compared to the level of household savings. The IMF is not the only institution concerned about the pace at which China’s debt has been growing so far. In late 2016, The Financial Times reported that China’s debt had reached 225% GDP or almost 28 trillion dollars in absolute figures. For a developed economy the average figures are around 280%. The pace of debt growth in China does look scary. In 2008, it used to be just 147% GDP. George Soros thinks that the current situation in China resembles the one in the USA before the 2008 crisis when the country had considerable debt burden but still kept on accumulating more and more debt. Most representatives of the international expert community agree that China’s debt has already exceeded the critical level and China needs to do something about it.


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