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Nowadays China is the fast-growing developing country, which GDP increases by an average 10 percent a year. According to World Bank, China is "the fastest sustained expansion by a major economy in history". By United Nations (UN) classification China belongs to developing countries, but Quartz reports, that UN doesn’t have an official definition of developing/developed countries. Usually, two main indicators used to distinguish developed countries from developing countries: GDP per Capita and sometimes Human Developing Index. Some economists determine the average level of GDP countries are developed: $25 Thousand. There is no level of HDI for developed countries, but an average is 0,88.
Today Chinese economy is a bubble in the price of bad assets, and there are risks for all: "Not only will you not make money, you will also lose money." In 4 Quarter 2016, total debt of China exceeded debt of the US, amounted more than 250%. Whereas government debt is comparable with other countries, corporate and household debt of China has risen sharply. And this is the reason to worry.

China's economic performance fell down after the crisis of 2008:

  • 2008 was painful for the global economy, including China. Demand for Chinese exports has slowed down noticeably, namely, almost 20 percent drop, that seriously affected the economy of China. The slowdown in exports influenced on production volume as well, the government said that more than 20 million migrants lost their jobs.
  • Manufacturing PMI, an indicator that illustrates the level of economic health of the manufacturing sector, hited the lowest level for a long time.
  • According to Yu Bin opinion, head of the micro economy research department at the State Council’s Development Research Centre, to keep stable economic growth high-level of infrastructure investments need to be. That's why after 2008 infrastructure investment jumped sharply, growth was more than 50 percent, as a result, loans increased too.

Chinese economy now:

  • Ability to pay by Chinese companies decreased from 2008, the number of healthy companies* fell by more than 30 percent, from 577 companies in 2008  to 845 - in 2016. 
  • In 2016, Fortune reported that Chinese biggest banks lost more than ¥270 Billion from writing off bad debts. In 2017, this figure is continuing to grow. 

Finally, why the world should be scared about China's growing debt? China is the second-largest world economy and world's trade engine. And it might be, that Chinese economy experienced the same economic shock like the US experienced of its credit bubble in 2008. 

 

*The Reuters estimated a ratio of healthy companies by using Net Debt to EBITDA ratio

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