Politics Block Solution as Mounting Debt Threatens China

The International Monetary Fund has warned China that debt-fueled growth is not sustainable. Chinese leaders continue to delay financial reforms for containing corporate debt that has accumulated at a rate with few precedents in recent history, according to Chris Miller, associate director of the Brady-Johnson Program in Grand Strategy at Yale. The country has imposed stricter capital controls and slowed capital outflows, but is still at risk for a financial crisis. After the 2008 global financial crisis, China and other countries came to the rescue and provided stimulus funding that in turn hiked debt levels. In China, many of the companies and banks are state-owned, and an underlying assumption in heavy lending to such corporations is that the government will provide bailouts to prevent failures in key sectors. Household and government debt, while not reaching the levels of other countries like Japan or the United States, is also rising. Miller concludes, “Even as Beijing talks about reducing financial risk, a powerful array of political interests are aligned in favor of retaining the current system, whatever dangers it might pose.” – YaleGlobal

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