China is going through a big political revolution and the economy is slowing down much more than official figures show
In a recent interview with the BBC Ken Rogoff, the former chief economist of the International Monetary Fund, says that a slowdown in China is the greatest threat to the global economy and that a calamitous “hard landing” for one of the main engines of global growth could not be ruled out.
China, the biggest economic story of the last 30 years, has endured a stock market crash that began in the country last summer highlighting the difficulties facing Chinese lawmakers.
Billionaire financier George Soros has warned that China’s debt-fueled growth bears an “eerie resemblance” to the conditions leading up to the 2008 financial crash.
Last week, the Bank of International Settlements, the global think tank for central banks, said that China’s credit to GDP “gap” – which analyses the amount of debt in an economy relative to annual growth – stood at 30.1%, increasing fears that China’s economic boom was based on an unstable credit bubble.
The figure was described as “very high by international standards” by the Financial Policy Committee of the Bank of England, which will now test British banks’ exposure to a Chinese slowdown.
British banks have $530bn worth of lending and business in China, including Hong Kong. That is about 16% of all foreign assets held by UK banks.
“Everyone says China’s different, the state owns everything they can control it,” Mr Rogoff, now Professor of Economics at Harvard, said.
”The IMF has marked down its forecasts of global growth nine years in a row and certainly the rumour is they’re about to do it again,” he said.
“China is going through a big political revolution and I think the economy is slowing down much more than the official figures show. They’ve seen credit fuelled growth and these things don’t go on forever.”