Dire warnings about the risks from China’s debt build-up have existed for nearly a decade though the crisis that many expect has yet to arrive. But with the world’s second-biggest economy growing at its weakest pace since 1990 and US tariffs adding pressure, investors are still nervous.
“Most countries that permit rapid credit expansions face financial crises or a sharp slowdown in the economy as risks in the financial system emerge,” says Logan Wright, director of China markets research at research provider Rhodium Group.
“Many explanations have been put forward as to why this has not happened in China so far, primarily emphasising economic factors: a high national savings rate and a low level of external debt,” says Mr Wright, who was lead author of a recent in-depth report on China’s financial risks for the Center for Strategic and International Studies, a Washington think-tank.