China’s Debt Crisis

14 Mar

As the level of China’s debt has now surpassed $3.4 trillion, Premier Li assures the people that market reforms and continual economic expansion will encourage further growth and sustain and create more jobs. Li’s announcement came after China experienced its first ever domestic-default on a corporate bond last week. As a result China has fixed a new GDP growth rate target of a mere 7.5%, in the aim to find a balanced approach to growth, job creation and inflation.

As China’s banks have now lent out a total of $9.1 trillion to the Chinese population there is a growing fear of economic slowdown or a credit crisis. However, Lord Sassoon – a former Treasury mandarin as well as Commercial Secretary to the Treasury from 2010 to 2013 – has said that, “I think there’s a lot of issues for the Chinese government to work on but they’re not hiding them and they’ve got very good people on the case”.

However, some argue that China has a far larger problem in its shadow-banking sector, and investment in unviable infrastructure. This coupled with the public debt, now worth 58% of its economy, could cause a real problem for China, and consequently cause damage beyond Chinese shores.

Sources:

http://www.telegraph.co.uk/finance/china-business/10692583/China-needs-to-solve-its-debt-crisis-says-former-Treasury-minister.html

http://timesofindia.indiatimes.com/business/international-business/Li-allays-fears-of-China-debt-crisis/articleshow/31952497.cms

http://www.livemint.com/Opinion/DsWIhWa1GIqS3JZ3iAo5JO/The-Chinese-mountain-of-debt.html

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