Written By: - Date published: 9:35 am, March 9th, 2014 - 33 comments
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Our export-led economy is a rock-star according to those on the right. Australia kept us going, and now, despite the EU still spluttering, we can fly because China will buy all our milk powder. Which we can keep making more of without destroying our ‘clean green’ country somehow.
But there’s a potential flaw in putting all your eggs in one China basket, as a number of BBC stories have been revealing.
First came Robert Peston looking at the level of debt and subsidies that sustains Chinese growth since the GFC and the West buying fewer Chinese goods.
Over the past few years, China has built a new skyscraper every five days, more than 30 airports, metros in 25 cities, the three longest bridges in the world, more than 6,000 miles of high speed railway lines, 26,000 miles of motorway, and both commercial and residential property developments on a mind-boggling scale.
There’s unsustainable growth which has Chinese debt at a reputed 200% of GDP, and investment at an unheard of 50% of GDP. It’s building massive ghost cities. The Chinese Banking sector has rapidly expanded from $10 trillion to $25 trillion in a few years – the increase is the size of the entire US commercial banking sector, built up over centuries.
The wheels must surely fall off at some point, but in the meantime, China must grow as the promise from above is wealth instead of democracy and a say. Should that wealth fail…
Next comes Linda Yeuh, looking at the massive shadow banking sector – accounting for 20% of banking in China is unofficial (non-bank) lending – often at interest rates of up to 100%.
Even local government is borrowing as central government promised growth and infrastructure, but didn’t provide the funds to local government to fulfil it.
If you think our fall-out from Finance Companies was bad, it’ll be but a grain of sand compared to what China might be loading up.
And now, we have the first time China is letting a major company default on a Chinese bond. A solar panel firm can’t pay its interest on a 1 billion yuan bond.
Where are they headed, and will they take us with them if we’re depending on them for our exports and recovery?