Letters: Red signals over China

Apropos William Pesek's article "China's Frankenstein economy" (June 27). The writer has posted several red flags to indicate that the Chinese economy might implode in a couple of years. That would put take the world economy huge steps backwards in terms of growth. Some other red signals that have not been mentioned in the article are also worth mentioning.

For example, corruption among high-ranking officials has perpetuated the economic bubbles and pushed many sectors to the current point of instability. Another factor weighing on China's growth is the housing bubble. Although China has plenty of bustling, overcrowded cities, it also has many empty buildings. Several experts have warned of a Chinese housing bubble that can exceed the one witnessed in the US during 2008, due to massive sub-prime mortgage growth. One of the biggest issues plaguing the Chinese banking sector is the large number of "bad loans".

A Standard and Poor's report said, "A credit turndown is unfolding in China. Massive market-driven consolidation may be on the cards for many players as credit quality becomes dramatically polarised." Adding to the woes of banks, large business units are looking for extensions on existing loans. While the banks are reluctant to comply, the local politicians are pressuring them to do so. Corporate delinquencies continue to increase, net interest margins have shrunk and banks have been facing strained liquidity management.

K V Rao Bangalore

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