A leading investment consultancy says that China could suffer a financial crisis in under a decade a result of unsustainable debt growth.
Gavekal Dragonomics chief economist Anatole Kaletsky told ABC News that a financial crisis is almost certainty affect China within the next ten years.
“I think there is a risk, to almost near certain, of a banking and financial crisis in China sometime in the next decade,” said Kaletsky, who previously worked as a financial journalist for The Economist and Reuters.
According to Kaletsky a crisis in China’s financial will be precipitated by the ongoing accumulation of debt in the private and government sectors as well as amongst Chinese households.
Rapid growth in mortgage lending has risen swiftly over the past year, with Chinese household debt levels approach those normally seen in advanced economies.
While Kaletsky expects a financial crisis in China eventually, he expects the country’s economy to avert catastrophe in the near-term, particularly given an ongoing clampdown on the financial sector by regulators.
“Debt levels are building up, but they are not yet at the levels that triggered crises in other open, market-oriented economies in the past.
“For the next few years, the Chinese can avert a financial crisis through the combination of fairly rapid changes in monetary policy, a great deal of direct bank regulation and credit regulation, which they still can do because so much of the banking system is state controlled.
“The underlying growth of the economy remains pretty rapid because China is still developing into a modern consumer-led economy.”
Kaletsky’s remarks arrive just as Moody’s downgraded China’s sovereign credit rating for the first time in three decades, over concerns about the country’s burgeoning unsustainable debt levels.
China’s total outstanding credit amounted to 260% of GDP in 2016, as compared to 160% at the time of the Great Financial Crisis.