Stratfor, 20 July 2016
Summary: China, like the US, has surprised the bears by the resilience of its economy. Here Strafor examines one source of its economic strength, one that might haunt its future — massive and imprudent accumulation of debt.
China Is Building Its Future on Credit
As China tries to overcome slowdowns in its industrial and trade sectors, the country’s banks have continued to increase the pace of lending, issuing 1.38 trillion yuan ($205.8 billion) worth of loans in June. The figure confirms some economists’ expectations that lending will keep rising as China’s central government attempts to revive economic growth and boost property markets that showed signs of another slump in May. It also indicates that despite Beijing’s repeated pledges to reduce the economy’s reliance on credit and state-led investment, the easy flow of financing from state-owned banks remains the country’s primary bulwark against widespread debt crises among corporations and local governments.