A Towering Chinese Debt Mountain Looms Over Markets

Slowed growth in the world’s second largest economy, combined with heavy debt and currency volatility, is dragging down global markets. Since 2007, China and other countries responded to the global financial crisis with loose monetary policy. China’s “government is constrained by a credit bubble that has ballooned to $28 trillion in an economy growing at its slowest pace in 25 years,” reports Enda Curran for Bloomberg News. Government, corporate and household debt approaches near 300 percent of China’s GDP; the US ratio is well over 300 percent. The country could backtrack on reforms like shifting to a service economy and allowing the currency to fluctuate with markets. About half of China’s debt is corporate, and “Evidence indicates consumers are still spending, house prices are steadying and export demand is recovering,” Curran explains. The government, struggling to soothe its nervous markets and foreign investors, is on a tightrope between reforms and control. – YaleGlobal