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Cracking the China ConundrumWhy Conventional Economic Wisdom is Often Wrong$
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Yukon Huang

Print publication date: 2017

Print ISBN-13: 9780190630034

Published to Oxford Scholarship Online: July 2017

DOI: 10.1093/oso/9780190630034.001.0001

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China’s Debt Dilemma

China’s Debt Dilemma

Chapter:
(p.66) Chapter 5 China’s Debt Dilemma
Source:
Cracking the China Conundrum
Author(s):

Yukon Huang

Publisher:
Oxford University Press
DOI:10.1093/oso/9780190630034.003.0005

China’s surging debt levels and an overheated property market have led many to believe that the country is headed for an economic collapse. Yet the argument that China is facing a financial crisis is overstated. China’s debt problem is largely confined to the state sector; its property market is not about to implode; and there is little evidence of widespread insolvency. The risks of shadow banking are also not as serious as many have argued. While the government has the discretionary resources to manage the situation, a set of SOEs does face serious financial problems and the country’s financing modalities are creating risks. Most observers see the banking system as the source of these problems, but the solution begins with reforming China’s fiscal system and restructuring management of SOEs. Addressing these issues would lead to a more financially sustainable growth path over the coming decade.

Keywords:   debt problem, overheated property market, shadow banking, fiscal reforms, restructuring SOEs, sustainable growth

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