China, as we have written for quite a while (along with many others) is in serious trouble. Underpinning the “Chinese Dream” is piles and piles and piles of (likely bad) debt.
This will not end well. 3 decades of hyper-expansion based on a crony capitalist economic model will likely result in much pain as reality comes crashing in. Prices based on sheer decree do not last. That short term credit is drying up in the world’s 2nd largest economy is a problem of potentially massive proportions.
(From The Telegraph)
“The credit-driven growth model is clearly falling apart. This could feed into a massive over-capacity problem, and potentially into a Japanese-style deflation,” said Charlene Chu, the agency’s senior director in Beijing.
“There is no transparency in the shadow banking system, and systemic risk is rising. We have no idea who the borrowers are, who the lenders are, and what the quality of assets is, and this undermines signalling,” she told The Daily Telegraph.