|SATYAJIT DAS: CHINA CAN'T RESCUE THE WORLD BECAUSE ITS RECENT GROWTH IS LARGELY ILLUSION|
Aruba, April 12, 2012 - The reality is that a significant part of China's growth since 2007-08 has been an illusion. Its headline growth of 8-10 per cent since then has been driven by new lending averaging 30-40 per cent of GDP. Up to 20-25 per cent of these loans may prove to be non-performing, amounting to losses of 6-10 per cent of GDP. If these losses are deducted, Chinese growth is much lower.
Unfortunately, China now faces significant problems in maintaining its high-growth strategy. In 2009, the Premier, Wen Jiabao, admitted that the "stabilisation and recovery of the Chinese economy are not yet steady, solid and balanced".
The case for a hard landing assumes the rapid and destructive unwinding of asset price bubbles and problems within the Chinese banking system. A poor external environment and losses on foreign investment exacerbate the problem. Growth collapses, triggering massive social unrest and political tensions.