China’s Financial Crisis Risk Grows as Economy Faces Headwinds

chinas-financial-crisis-risk-grows-as-economy-faces-headwinds

A closer examination of the Chinese economy’s near-term prospects offers two possible directions, according to Ruchir Sharma’s article in the Financial Times, as long-term predictions for the country’s economy grow more pessimistic.

According to the chair of Rockefeller International, one possibility is that the nation may still have a few recoveries when its economic slump sets in, akin to the false dawns that Japan saw in the 1990s.

Sharma stated that China’s tech sector, which continues to outperform that of other advanced economies, may be the source of any brief rebound. These sectors continue to expand despite Beijing’s onerous regulation of its tech companies; for instance, China has surpassed all other exporters of electric vehicles this year.

Another possibility is that China’s real estate market may wind up resembling that of the US in the summer of 2008, when a slump was already beginning but Wall Street didn’t experience a collapse.

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China’s Economy Faces Deepening Crisis as Property Sector Falters

chinas-financial-crisis-risk-grows-as-economy-faces-headwinds
A closer examination of the Chinese economy’s near-term prospects offers two possible directions, according to Ruchir Sharma’s article in the Financial Times, as long-term predictions for the country’s economy grow more pessimistic.

The property sector in China is a major drag on the country’s economy amid an increasing number of challenges. Deep debt has drained the sector, which contributes up to one-third of the nation’s GDP.

Sharma claims that while the financial sources utilized by local governments to buy real estate currently account for about half of China’s government debt, the prices of land and homes have decreased by about 5% annually. Even the most reliable developers in the sector have experienced defaults.

Beijing has demonstrated extreme reluctance in initiating a significant economic stimulus program, in contrast to Tokyo in the 1990s. Instead, it has implemented a variety of more modest support measures, which have so far had a limited effect.

Since housing bubbles fed by rising loans typically result in more severe economic downturns than what China has seen thus far, a crisis scenario is a little more likely than a significant economic recovery. 

Whether China’s next move makes things better or worse, it will probably be much more spectacular than the mediocre scenario that the general public anticipates, remarked Sharma.

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Source: Newsbreak

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