China’s economy, the second largest in the world, is displaying the same symptoms of crisis that triggered the global financial sector collapse in 2008, economists from Japanese bank Nomura warn, quoted by CNBC. The rapid accumulation of debt, decline in potential growth and high prices of real estate are three signs of concern that should not be minimized, said analysts Zhiwei Zhang and Wendy Chen.
“China faces rising risks of a systemic financial crisis and the government needs to take action quickly to contain such risks. We believe the true extent of financial risks in China is not fully appreciated by investors,” the analysts wrote in a report on Chinese economy.
According to the two analysts, maintaining a relaxed monetary policy in China this year will increase the possibility of a financial crisis in 2014, as it may fuel inflation and indebtedness. “This is clearly a dangerous choice, but we cannot rule it out given political pressures to maintain strong growth,” reads the report.
Beijing government in recent weeks has sent out several “strong” messages showing that it is concerned about financial risks in the economy. Besides the high level of indebtedness, China is also facing a potential declining growth, economists say, due to lower employment. Working population of the country began to decline in 2012, according to Nomura. Last year, China’s economy rose by 7.8%, the slowest pace in 13 years, while this year, the government aims at 7.5%.
The rapid increase in property prices is the last sign, because strong price advance generally preceded banking crises, said Nomura economists.
According to official data, house prices rose by 113% between 2004 and 2012 in Chinese major cities. A study by professors from Tsinghua University (China) and National University of Singapore indicates, however, an advance of 250% in 2004-2009. In comparison, the Case-Shiller index of U.S. housing market rose by 84% between 2001 and 2006.
The Chinese government has recognized the risks of real estate and imposed some measures to stabilize prices, but they will not be able to maintain control in the longer term, according to Nomura.
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