China's 2012 Crisis

Brian Hicks

Updated March 3, 2010



great wall


Here’s the latest story on the economic truth from behind the Great Wall.

As you might expect, it tends to be at odds with the official party line.

From Bloomberg entitled: China’s Hidden Debt Risks 2012 Crisis, Northwestern’s Shih Says

“China’s hidden borrowing may push government debt to 96 percent of gross domestic product next year, increasing the risk of a financial crisis in the world’s third-biggest economy, Professor Victor Shih said.

“The worst case is a pretty large-scale financial crisis around 2012,” said Shih, a political economist at Northwestern University in Evanston, Illinois, who spent months researching borrowing transactions by about 8,000 local-government entities. “The slowdown would last at least two years and maybe longer,” the author of the book “Factions and Finance in China” said in a phone interview March 1.

Surging borrowing by local-government entities, uncounted in official estimates of China’s debt-to-GDP ratio, is the key reason for Shih’s concern. Harvard University Professor Kenneth Rogoff said Feb. 23 that a debt-fueled bubble in China may trigger a regional recession within a decade, while hedge-fund manager James Chanos has predicted a Chinese slump after excessive property investment.

By Shih’s count, China’s debt may reach 39.838 trillion yuan ($5.8 trillion) next year. His forecast for debt-to-GDP compares with an International Monetary Fund estimate for China of 22 percent this year, which excludes local-government liabilities. The IMF sees Spain at 69.6 percent, the U.S. at 94 percent, Greece at 115 percent and Japan at 227 percent.

Chinese officials allowed lending to explode from late 2008 to fight off the effects of the global financial crisis. In 2009, new loans rose to a record 9.59 trillion yuan ($1.4 trillion).

In the fourth quarter of 2009, the Chinese economy grew 10.7 percent from a year earlier.

The economy faces “a slow grinding down of all this debt and there’s no easy way out,” Beijing-based Pettis, a finance professor at Peking University, said in a Feb. 24 interview.”


Is is just me or does it seem like everything is going to slam into the fan in 2012?


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