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Is a Chinese banking crash imminent?

Chinese central bank governor Zhou Xiaochuan has raised concerns about the high level of private debt to GDP.  Chinese corporate debt is around 160 percent of GDP while private debt as a whole is around 230 percent; leaving Chinese banks at considerable risk from defaults.

The Bank for International Settlements has warned that the Chinese banking sector looks eerily similar to western banks on the eve of the 2008 crash.  Hardly a surprise, since the Chinese economic expansion that the western countries promoted as the “engine of growth” that was meant to power the global economy to new heights was largely based on the failed western model.

The real question is whether the highly centralised Chinese state can avoid the spectacular failure of western governments and central banks, which have proved wholly unable either to unwind quantitative easing or to increase interest rates.  Certainly the Chinese state is in a position to take a different approach – such as using its ability to print money in order to wipe out corporate debt.  Whether it will actually do so will be revealed in due course.

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