China: the imminent debt crisis?
The risk of a credit crunch is hanging over China. The pace of the nation’s debt increase is extremely high. China’s local governments have public debt of $3 trillion. This week one of Chinese trusts has managed to avoid default, presumably, thanks to a bailout. Still, this raises many questions about the nation’s financial future. The nation’s extraordinary economic growth used to be a wonder and an example for others. However, it seems that this growth is now being built on the growing reliance on debt that will be difficult to repay. The existence of a huge shadow banking sector which, according to some estimates, equals 40% of GDP, makes the problem ever more serious.