Why China’s Economy Is on Borrowed Time

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Heritage Foundation:

On Friday China announced its economy had expanded at a 6.7 percent rate in the first quarter of 2016. While this is the slowest growth since the depths of the great recession, it conveniently remains within the government’s official target of 6.5-7.0 percent. Unlike all developed countries, there will be no revisions to this figure in the coming months or quarters.

 

There were two factors that kept Beijing’s growth within its target range: Easy money and the property market. The level of “total social financing,” or borrowing, rose 16 percent in March from a year ago.

 

This was fueled by the bond issuance by local governments as part of its bailout program and investment in ‘fixed asset investment’ which is largely composed of infrastructure and factories.

 

With total debt approaching 300 percent of GDP and massive overcapacity in many industries such as coal, cement, chemicals and refining, this development only exacerbates China’s serious structural problems.