George Soros: Is China Becoming the US of 2008?

4 Μαΐ 2016

China’s boom in credit growth, which we discussed earlier in this series, could affect China’s growth. George Soros said, “Most of the money that banks are supplying is needed to keep bad debts and loss-making enterprises alive.”

   If a significant part of this credit is converted into repaying bad debt and non-performing assets, it could lead to a serious economic crisis. In the United States, the soaring credit level and real estate bubble were the prime cause of the financial market crash in 2008.
   Chinese financial markets already crashed in August 2015. However, the total debt-to-GDP ratio is still too high, at 246% in 2015. The total public debt-to-GDP ratio for the United States in 2007 was 62%. The Chinese economy grew 6.7% in the first quarter of 2016, in line with expectations. The rise in credit facility is the main reason for this GDP growth.
   According to a report published by Standard Chartered, China’s public and private debt compared to economic growth was 5.4% in December 2015. If the debt increases to more than 5% of GDP, then it will fall under the “highly risky” category.
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