Thursday, January 31, 2013

Ever since the 2008 financial crisis broke out, the world economy has treaded a very fragile and capricious path. There is overall sense of gloom and pessimism. In fact, many have taken to predicting the next big crash, the next big crisis. Will it happen in 2013? Or 2014? Will it be the Eurozone or the US?

With the global economy going through a tough patch, many have been banking on China to prop up global economic growth. What many are not expecting is a full blown financial crisis in China, the emerging economic superpower. We came across an interesting article that discussed this possibility. Though it would be difficult to pinpoint exactly when the bubble would burst, there are some indications that things could eventually get there.

One must remember that the Great Depression struck the US just before it emerged as a global superpower. Could China's fate be similar? While the economy has been growing at a rapid pace, its debt burden has been bulging. In fact, its non-financial debt as a percentage of GDP is close to reaching the same levels that the US had scaled just prior to the 2008 financial crisis. It's already at the same level where Japan was prior to the 1990 banking crisis. If this indicator is anything to go by, China could be heading towards a major disaster. It seems like it's only a question of time.