Feeding the Dragon: Why China’s Credit System Looks Vulnerable – GMO

Feeding the Dragon: Why China’s Credit System Looks Vulnerable

Edward Chancellor and Mike Monnelly – Published 22/01/2013

The conventional view is that China’s economy has recently experienced a "soft landing" and is now poised for take-off. In this white paper, GMO’s Edward Chancellor and Mike Monnelly tell a rather different story, namely that the Chinese credit system is displaying many of the indicators associated with rising financial instability – most notably, in the explosive growth of shadow banking instruments. As nonbank credit expands, "Red Capitalism" – that is, the ability of Beijing to control domestic credit for public policy purposes – is facing an existential threat.

EC_FeedingtheDragon.pdf

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