China’s policymakers are aggressively clamping down on what some experts are calling a credit bubble. This comes as China’s economy slows and incoming data continues to disappoint.
All of this has economists upping their odds of a hard economic landing, a scenario where growth slows to a point that causes unemployment to spike.
China’s economic problems are well documented
China Economist Wei Yao of Societe Generale SA (OTCMKTS:SCGLY) (EPA:GLE) noted while the problems facing the Chinese economy are well documented, they think many investors may still be relatively complacent about the risk of a hard landing. This could prove a costly mistake. The Chinese economy is still imbalanced: almost 50% of GDP comes from gross fixed capital formation, up from a third in 1997. Massive excess capacity, high and rising corporate debt and an increasingly marginalized private sector are other symptoms of deeply rooted imbalances in China’s economy.
Chinese economy is set on a path of structural deceleration
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