With everything going on in Illinois, Puerto Rico, Greece, Italy, and Spain, among others, it’s easy to take your off the Chinese ball. China is not in danger of imminent default, but the country is in for a long stretch of Japanese-style stagnation. From Wolf Richter at wolfstreet.com:
Sudden Financial Meltdown is less likely.
The Chinese government has the situation under control and will do whatever it takes to keep it under control — that’s in essence what Premier Li Keqiang said today in a speech at the World Economic Forum in the Chinese city of Dalian.
“We are fully capable of achieving the main economic targets for the full year,” Li said. The mandated growth rate this year is 6.5%.
“Currently, China also faces many difficulties and challenges, but we are fully prepared,” he said, according to Reuters. He said this because everyone from the IMF and the New York Fed on down has been pointing at and fretting about the debt powder keg that China keeps filling with ever more volatile compounds.
“There are indeed some risks in the financial sector, but we are able to uphold the bottom line of no systemic risks,” he said. “We are fully capable of preventing various risks and making sure economic operations will be within a reasonable range.”
So the powder keg isn’t going to blow up. As ever more debt is added, the government is pursuing the shift to a consumer-driven economy, while trying to tamp down on excess and outdated capacity in some select industries such as steel and coal. These cuts, Li said, would continue.
“No development is the biggest risk for China,” he said, so China wants to “sustain medium- to high-speed economic growth over the long term.” But given the size of China’s economy, it “will not be easy.” In other words, come hell or high water, credit creation will continue in order to maintain this mandated growth.
So when will this powder keg blow up?
It might not blow up; China might be able to prevent that kind of event, and it is less likely that China will melt down financially despite its terrific credit expansion, and there are no signs of an immediate crisis. But China, like Japan in the 1980s, is suffering from a “delusion” about how to fix its economic problems.
To continue reading: China Suffers “Delusion” like 1980s Japan, Faces Long Stagnation