Why China’s debt crisis may not be as bad as thought
Over the last few days, media and observers have taken renewed interest in China’s growing debt burden and asked what the effects of a crisis in China may be on the rest of the world. A fair question if one believes that China can be analysed using the methods of western economies. But that’s not how things work.
China is like a large corporation which is run according to a ‘budget’, the 5-Year Plan, pretty much similar to a corporate budget, which lists all objectives for the future and potential risks. Of course, some of those objectives and forecast may be missed and it is exactly under those ‘failure scenarios’ that the biggest difference between China and the rest of the world emerges: the Chinese economic and financial system has the capability to react to shocks, re-adjust to new needs and face crisis with a degree of flexibility and speed of execution that no other country in the world has.