By Gene Frieda
Arab News — Thursday 31 July 2014
Since his first address as China’s president last year, Xi Jinping has
been espousing the so-called “Chinese Dream” of national rejuvenation
and individual self-improvement. But the imperative of addressing the
unprecedented amount of debt that China has accumulated in recent years
is testing Xi’s resolve, and his government is blinking.
The Chinese
government’s uncertain ability — or willingness — to rein in debt is
apparent in its contradictory commitment to implement major structural
reforms while maintaining 7.5 percent annual GDP growth. Given that
China owes much of its recent growth to debt-financed investment, often
in projects like infrastructure and housing, meant to support the
Chinese Dream, any effort to get credit growth under control is likely
to cause a hard landing. This prospect is already prompting the
authorities to delay critical reforms.
To be sure, China’s debt/GDP
ratio, reaching 250 percent this month, remains significantly lower than
that of most developed economies. The problem is that China’s stock of
private credit would normally be associated with a per capita GDP of
around $25,000, almost four times the country’s current level.
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