IMF warns China could lead global financial crisis, as Red Dragon country is currently holding a big financial and corporate debt, which is increasing at a rapid pace. What are the consequences for the rest of the world?
IMF warns China could lead global financial crisis
The deputy director of the IMF’s Asia-Pacific department, Markus Rodlauer, believes that the level of China’s debt in was on the “unsustainable path.” He further stated that the financial issue in China would have “very serious repercussions” for the global economy. As Mr. Rodlauer has stated:
“The level of financial and corporate debt and the complexity of the financial system and rapid growth in shadow banking is on an unsustainable path. While still manageable in its size given the size of the public assets under public control, the trend is dangerous.”
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He also mentioned the fact that the longer the financial issue in China will be lasting, the more significant the turmoil and the disruption might be. He added:
“ from a mild growth slowdown to a sharp slowdown in growth to potentially a financial crisis.”
China’s debt increasing at a “dangerous pace”
Markus Rodlauer additionally believes that an economic recession in China would have a significant influence on the rest of the world. He stated:
“There is no doubt that a calamity or a problem in China would have very serious repercussions for the global economy, both real and financial.”
The latest World Economic Outlook by IMF has highlighted that the debt in China was increasing at a “dangerous pace”, where IMF Stability Report revealed that the small Chinese banks were largely exposed to shadow credit as a share of capital buffers.
The growth investment by private firms in China reportedly dropped to a new low point in the first half of 2016, while fixed asset investment growth in the first half decelerated by 9 percent, which is the weakest since March 2000.
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