According to ING Investment Management senior emerging markets strategist Maarten-Jan Bakkum, economist and strategy experts are too cautious over the growing risks surrounding the Chinese economy.
Bakkum said that despite the growth of total Chinese debt to more than 70% of GDP in the last five years, putting the financial system under great pressure if the economy slows, experts are sitting on the fence in their analysis of China. “With increasing reports about bad loans and defaults, there are growing concerns in the market over how Chinese banks will weather the current slowdown. This is reflected by the weak Chinese stock market, falling commodity prices, and even the renminbi, which declined slightly in the past few weeks,” Bakkum said. He added: “There are growing worries, but the tendency is to sit on the fence. Apparently hardly anyone in the financial world is bold enough to draw clear conclusions, even though the risks are enormous.”
Bakkum said that state-owned companies and local government is up to its ears in debt, provincial governments are bankrolling many loss-making manufacturers and the real estate sector is experiencing a downturn in many parts of China. “Viewed objectively, it is increasingly difficult to imagine a scenario where a credit crisis or a drastic slowdown can be avoided. The fact that in spite of this very few analysts are predicting a crisis or recession may reflect fear. Fear of the massive implications of predicting a Chinese crisis for investment portfolios. And fear of the Chinese authorities, who are not keen on critical economists who do not toe the party line,” Bakkum observed.