China Is A Big Threat To The World Economy, Says Experts

China Is A Big Threat To The World Economy, Says Experts

                    China is the second largest economy in the world, just after the United States. The Chinese Market has outperformed over the years as the company grows at an immense GDP rate. However, 2019 has been here when everyone has started worrying about the growth prospects of the world.

China contributes the most to the GDP growth of the world. However, experts and portfolio managers believe that this would not sustain in 2019. The GDP growth of China has already dropped. Everyone around the world is saying that the drop and the GDP rate is because of the US-China trade war.

Using trade war does have an impact on the growth of China. However, exports and portfolio risk managers believe that more pain is there on the card and the world may soon see a recession. They how solely blamed China for creating a mess in the world economy.

We can see all indicators showing that China is slowing down and it means a risk of the global recession. The thing which must be understood is that the US-China trade war is not the culprit. Rather, China has created its own mess.

What is the Actual Reason?

The is the huge pullback of the credit growth, which China is addicted to. There has been of 40% year on year growth in the pullback of credit till 2018. This comes into the picture because of more than four-fold growth in credit supply. The money in circulation has grown from 9 trillion dollars to 41 trillion dollars. The total banking system asset value in the United States is 18 trillion dollars and that in Japan is 10 trillion.

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This best credit growth makes China stand in the same situation as that of the 2008 financial crisis when the banking system grew enormously. There is a huge risk of falling down when the credit supply of the banking system is much more than what the GDP of the country can sustain.

Reason of Growth in Credit Supply?

It is a common observation that the GDP of China depends heavily on the export sector of the country. The growth in most stocks come because of their ability to export. However, the restriction of export, because of bilateral trade, has led to a change in the economic structure of the country.

The export theme is to be converted into local consumption theme. The property sector and other consumption sectors had to be boosted in order to revive the economy because of the slowing exports. However, it was not possible to do so so without increasing the credit supply in the market.

The government forced the banks to increase the credit supply in the market so that the loans are easily available for the customers and they can buy products to boost the local consumption theme. This becomes one of the biggest threat to not only the Chinese economy but the entire world economy as such.

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Naman Dhyani

About the Author: Naman Dhyani

Naman is a dedicated writer who is always ready to take new challenges to enhance his quality of work and efficiency. He loves to explore things until he reaches the source. He believes that his fingers are destined for the keyboard and his heart solely for the readers