Tuesday, 25 August 2015

Seemingly in Denial

Chinese stocks fell another day, sparking more fears of China's economy
Chinese stocks slid for another day, 7.6 percent lower and adding to the 8.5 percent lost yesterday, it was the benchmark's lowest level since December 15.

Some experts like Kenneth Rogoff, a professor of economics at Harvard University predicted China's financial crisis -- if this is it -- and says it's because of the Middle Kingdom's massive debt.

The Chinese government may like to believe -- or make others believe -- it has control of the markets, but Rogoff says, "It is very vulnerable. There is a lot of debt."

No one knows exactly how much debt China has, but according to a report published earlier this year by McKinsey & Company, China, the country's debt rose from $7 trillion in 2007 to $28 trillion by mid-2014.

Professor Kenneth Rogoff predicted China's impending crisis
"Several factors are worrisome: Half of loans are linked directly or indirectly to China's real estate market, unregulated shadow banking accounts for nearly half of new lending, and the debt of many local governments is likely unsustainable," the report says.


Rogoff isn't the only person who has been pessimistic about China's economy -- former Treasury Secretary Henry Paulson Jr predicted doom and gloom, while hedge fund manager James Chanos has been ringing alarm bells for years. "Whatever you might think, it's worse."

It's a serious issue the Chinese government needs to sort out, Rogoff says. "Financial meltdown leads to a social meltdown, which leads to a political meltdown. That's the real fear."

And then on top of it, is how the explosion in Tianjin almost two weeks ago that has now left 135 dead, is being handled by the government. The lack of transparency and getting more information out has undermined the Chinese government's credibility.

No mention of stock market losses today
Speaking of which, People's Daily, the official newspaper of the Chinese Communist Party, made no mention of Black Monday in any of its 24 pages today. It instead focused on economic development in Tibet and the upcoming 70th anniversary of Japan's defeat in World War II.

However what's interesting is that those media who don't tow the official line have openly discussed what should be done about the economy and stock market, some calling for the government to intervene, others not. It's a good healthy debate, though at some point Beijing may enforce a total lock down on the matter.

Regardless it's a serious issue that needs to be sorted, which the officials in Zhongnanhai must been trying to figure out as we speak.

In the meantime why not learn more about how the economy in Tibet is developing!

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