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China built cities without people, malls without customers, and roads without cars, in anticipation that all of those  would soon be filled. But many remain empty.
China built cities without people, malls without customers, and roads without cars, in anticipation that all of those  would soon be filled. But many remain empty.

China Needs Rapid Growth to Ease Huge Debt Bubble

A former deputy chief of the IMF: The real risk that China poses to the US and global economies is that its rapid economic growth since the 2008-2009 global economic recession has been powered by a credit bubble of epic proportions

China Needs Rapid Growth to Ease Huge Debt Bubble

China's economy is a juggernaut, as one often hears. It can keep growing forever. After all, it has 1.3 billion people, with a near-bottomless need for goods and services. But in fact, China's growth miracle is looking a bit bubble-ish these days.
Yes, China's economy is growing. Last year, China's GDP grew 6.7%, down from 6.9% in 2015, 7.3% in 2014, and 7.8% in 2013. See the downward trajectory there? Current GDP growth, even if you accept the Chinese government's self-admittedly phony economic data, is half the growth rate just before the global financial crisis hit, investors.com reported.
The problem is, it needs rapid growth to pay off its enormous investments fueled by massive amounts of government credit.
"The real risk that China poses to the US and global economies is that its rapid economic growth since the 2008-2009 global economic recession has been powered by a credit bubble of epic proportions," wrote Desmond Lachman, an American Enterprise Institute fellow who previously served as a deputy director of the IMF, earlier this year.
What does "epic" mean? By one account, China has expanded credit by nearly 100% of the nation's GDP since the end of the credit crisis. Since 2007, China has added $24 trillion in debt at all levels, which is more than the US government's total debt of just under $20 trillion.
It's fueled an investment boom and excess capacity. The Washington Post in 2015 reported that China used more cement in just two years—2011 to 2013—than the US used in all of the 20th century. Let that sink in for a moment. Meanwhile, China now produces five times as much steel as all of Europe each month.

Borrowing Continues
But where are the customers? China built cities without people, malls without customers, and roads without cars, in anticipation that all of those would soon be filled. But many remain empty—popularly known as Ghost Cities. China's population is aging fast, and its growth is grinding to a halt. Still, many of China's heavily-indebted businesses continue to borrow from government lenders, who have no incentive to stop the game.
The IMF, in a report last month, warned: "International experience suggests that China's credit growth is on a dangerous trajectory, with increasing risks of a disruptive adjustment."
The problem is, Chinese President Xi Jinping, fearing instability from his country's free-market experiment, wants to reassert Communist Party control over the country's economy. That could slam the brakes on China's fast growth.
Even if he doesn't, as China Morning Post columnist Jake Van Der Kamp wrote this week, China's economy has come to resemble a Ponzi scheme: "As long as it keeps growing everything is fine. When it stops growing it collapses."
China has lots of first-rate infrastructure and talented people. But a financial crisis there would surely do damage to the world economy, including the US. Better for China to reform now, than to risk a financial collapse later.

Trade With NE Asia
China will continue to facilitate trade and investment in the Northeast Asia region, officials said on Friday. They also urged all the parties concerned to forge cooperation in sectors like internet-based businesses, high-end intelligent manufacturing and modern services, Xinhua reported.
China's Vice-Premier Wang Yang said, "Although China has run a trade deficit with several countries in the region, we do not engage in trade protection, and we are willing to further expand our imports from these economies to meet diverse needs." He made the remarks while addressing the 11th China-Northeast Asia Expo that opened in Beijing on Friday.
China is willing to sign high-level trade agreements with the parties concerned, he said.
The biannual expo serves as an important platform to bolster economic and trade exchanges among Northeast Asian countries.
In 2016, trade between China and the five other countries of Northeast Asia totaled about $606 billion, accounting for 16.4% of China's overall foreign trade, Qian said. In the same year, the other five countries' investment in China reached about $7.85 billion, while China's total investment in these countries also continued to grow, Qian Keming, vice-minister of commerce, said.

 

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