There’s no free lunch in China-unless household is willing to pay for it

April 9, 2010 at 11:13 am Leave a comment

Michael Pettis wrote a wonderful article on bad debts accumulating in China and who has to pay for it in the end in order to prevent bank collapse.

Here what he summarise:”It turns out that banking crises might not be costless, even if they don’t lead to banking collapses. In the case of China they may instead lead to a collapse in consumption growth. As part of the trade dispute that China is facing with the rest of the world, this should give some indication of how little room China has for its adjustment. Anyone who is too impatient with the glacial pace of Chinese adjustment must recognize just how difficult it will be for China quickly to reorient its economy towards household consumption. The risk is that China, like Japan in the 1990s, will rebalance in the form of a sharp contraction in GDP growth as households struggle to pay for the misallocated lending boom.”

To read more(caution:it is long),
Who Will Pay for China’s Bad Loans?


Entry filed under: Watch your step.

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