China: Milagre ou... business as usual?

China’s leadership is walking a tightrope, attempting to balance unsustainable economic growth against potential political unrest. Beijing has managed to stave off a major crisis through repeated stopgap measures, but how long can it continue?

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A Chinese miracle - but how long can it last?

According to an increasing number of investors and economists, the Chinese boom in cheap money may have triggered an unsustainable increase in the value of stocks and property. In the past year, the Chinese leadership, committed to sustained economic growth, poured $585 billion in stimulus money into its domestic economy, then ordered state-run banks to double their lending. Thus China's 2009 boom is better viewed as a sign of an overheating economy.

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Reassessing China’s Sovereign Risk:
Emerging Global and DomesticTrends Threaten the “Chinese Miracle"

sumário - Today, thanks in part to its investment-grade sovereign credit rating, China is seen as a strong credit risk. But is this just a mirage? Kevin O’Brien argues that political, social, environmental and economic trends — including “artificial” ratings, massive amounts of non-performing loans in the state banking sector and the Chinese government’s default on billions of dollars worth of credit sovereign debt — make China very risky.

Contrary to the prevailing perception of China as a relatively benign credit risk, recent research1 demonstrates that the country has been subject to troubling trends - including escalating incidences of civil unrest; adverse labor demographic; severe environmental degradation; wage inflation; soaring transportation costs; failure to address state institutions’ bad debt; a transparently artificial sovereign credit rating; and the erosion of Beijing’s central authority — that represent an ominous threat to its economic outlook.
In fact, the myth of China’s ever-expanding economy belies sustainability issues that comprise the core of China’s economic development. This article summarizes some of the key global and domestic trends impacting China’s political economy and reveals why the so-called Chinese Miracle may be facing the very real threat of a dramatic reversal.
One of the greatest problems facing China is the government’s failure to acknowledge and effectively address the true extent of state institutions’ bad debt. China’s financial system continues to generate many non-perform...

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