We are caught in a debt trap
China is stuck in the deep end of this quagmire. In the run-up to the global financial crisis of 2008, debt levels rose dramatically in the United States and many European countries
By early 2016 China was on the financial brink.
To stave off another global financial crisis, the US Federal Reserve had to abandon plans to tighten monetary policy, and Chinese authorities had to inject massive amounts of money into the financial system.
Evergrande’s outstanding debts of more than $300bn represent just 0.6 per cent of total credit in China, but... US subprime mortgage market peaked at only $600bn before it went bust and threatened to take down the global financial system.
Like its more advanced rivals from the US to Japan, China has created a financial system that is in constant need of government support and stimulus.
Ruchir Sharma, Morgan Stanley Investment Management’s chief global strategist, is author of ‘The Ten Rules of Successful Nations’, HY 27 September 2021
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