"China Has Its Own Debt Bomb"
Original Article by Ruchir Sharma of The Wall Street Journal
Six years ago, Chinese Premier Wen Jiabao cautioned that China's economy is "unstable, unbalanced, uncoordinated and unsustainable" in an attempt to change the course of an economy dangerously dependent on one lever to generate growth, Sharma explains. To keep China's economy growing durign the 2008 financial crisis, officials launched a $500 billion stimulus and ordered banks to fund a new wave of investment. Investment has risen as a share of gross domestic product to 48%—a record for any large country—from 43%.
Since 2007, the amount of new credit generated annually has more than quadrupled to $2.75 trillion in the 12 months through January this year, Sharma reveals. Also, since 2008 China's total public and private debt has exploded to more than 200% of GDP. However, Sharma states that the overwhelming consensus still sees little risk to the financial system or to economic growth in China.