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Questo articolo è stato pubblicato il 01 febbraio 2013 alle ore 15:46.

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The money supply has grown significantly faster than output for decades. In 2012, the growth rate of M2 was about 14%, relatively low by historical standards, but still significantly higher than the nominal GDP growth rate. As a result of this chronically rapid growth in broad money, China’s M2/GDP ratio has surpassed 180%, the highest in the world. Though the full implications of this uniquely high ratio for macroeconomic stability need further investigation, it certainly implies financial fragility and a weakening of the PBOC’s ability to control overall liquidity in the economy.

Moreover, though China’s public debt/GDP ratio is officially still under 20%, since the onset of the global financial crisis in 2008, its fiscal position has deteriorated. If the government’s contingent liabilities are included, China’s debt/GDP ratio may be closer to 50%.

A worrying development in this regard is the rapid rise in enterprise debt, which, according to various studies, now surpasses 120% of GDP – much higher than the leveraging rates of nonfinancial enterprises in major developed countries. Even if this does not trigger a crisis, it sharply narrows the government’s scope for using expansionary fiscal policy to stimulate the economy.

In 2011 and early 2012, there was much talk of a crash in China’s housing market, and a chain-reaction of defaults in underground credit networks and local-government finance platforms. In 2013, the talk has changed to the danger of a resurgent housing bubble and the collapse of the shadow banking system, which consists mainly of wealth-management firms and trust companies.

According to market sources, total assets managed by the shadow banking system have risen exponentially since 2009, totaling ¥14 trillion, or one-third of GDP, in the third quarter of 2012. With relatively slow growth, corporate profitability, upon which the returns of the shadow banking system’s asset pools are based, is low and falling. Where, then, will the high returns of the financial products provided by the shadow banking system come from?

If the shadow banking system collapses, the consequences for the financial system will be much graver than the problems caused by underground credit networks and local-government finance platforms, which were much discussed in 2012. No wonder, then, that one influential banker regarded as a possible successor to PBOC Governor Zhou Xiaochuan has warned of the possibility of a Chinese-style subprime crisis.

For now, the Chinese economy, having received its cyclical does of stimulus, should be okay. By the end of the year, however, the costs of the structural adjustment needed to shift China’s growth model away from investment demand could rise further.

Yu Yongding is a former president of the China Society of World Economics and director of the Institute of World Economics and Politics at the Chinese Academy of Social Sciences, and has also served on the Monetary Policy Committee of the People’s Bank of China.

Copyright: Project Syndicate, 2013.

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