Why China is not on the edge of a financial crisis

After the happening of the 2007-2008 global financial crisis, a number of economists and even famous businesspersons had predicted that the next global crisis would stem from China because of the fear about the slower economic growth, large fiscal deficits and real estate bubble. For example, as early as 2013, Hong Kong property tycoon Li Ka-shing had been selling his assets in mainland China and Hong Kong and moved his family wealth to UK. Many believed that Li’s withdrawal from China showed the market fear of a possible hard landing of the Chinese economy. However, similar to the fact that economists always failed to predict a financial crisis, China is actually NOT on the edge of a financial crisis for the below reasons:-

Why Chinese consumers will continue to surprise the world

China has a great consumer market. But still recently it is not easy for people to ignore the news about a slow-growth dilemma that China seems to be heading into. What is actually happening is that the consumer wealth and spending in China will keep growing rapidly. Those who are pessimistic about economic significance and position of China, they are seeing the performance of the Chinese market from an incorrect perspective.
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Figure 1.0 Chinese consumers love shopping overseas

Why China Is Shaking the World

China’s continual slowing economic growth seems to be an inevitable trend, a difficult position that fears the world. The concern among the international investors is that the second largest economy and world’s long trustworthy growth engine may stop contributing its significant part to the global economic growth. This fear is intensified by the oil-price slump, subdued economic expansion in Eurozone as well as other geopolitical worries.

How Much U.S. Debt Does China Actually Own?

Since the end of September 2008, China had passed Japan and become the largest foreign holder of US government debt (people.cn 2008). According to Department of the Treasury, as of October 2014 China held $1252.7 billion of U.S. debt or about 7% of the total U.S. debt (zerohedge.com 2014, treasury.gov 2014). Calculated based on a total resident population of 320,064,285 as of January 5, 2015, per capita debt owed to China of the United States was $3914.

China’s PMI hit the year low 50.1% in December 2014

National Bureau of Statistics of China released the most recent data which showed that the official manufacturing Purchasing Managers’ Index (PMI) in December dropped to 50.1% from 50.3% in November, representing that China is on the brink of contraction. December 31, 2014, the HSBC China Manufacturing Purchasing Managers’ Index which measures that nationwide manufacturing activity fell even lower to 49.6 indicating that contraction is already happening. Previously, 11 market research institutions had predicted the manufacturing Purchasing Managers’ Index (PMI) of China to drop to a 18 months low of 50.1% caused by the inadequate momentum in the manufacturing sector.

Chinese local government debt recored as 10.89 trillion yuan (US$ 1.78 trillion), market hope for debt crisis vanished

On December 30, the National Audit Office published the results of audit of the national government debt. As of the end of June 2013, all level of governments in China bear the responsibility to repay a total debt of 20.7 trillion yuan (US$ 3.82 trillion), of which the local government debts account for 10.89 trillion yuan (US$ 1.78 trillion).

China Third-quarter GDP grew by 7.8%

Preliminary accounts released by National Bureau of Statistics of China show that the third quarter GDP of China experienced an increase of 7.8%. In term of the sub-industries, the primary industry contributed 3.5669 trillion yuan, an increase of 3.4%; the secondary industry contributed 17.5118 trillion yuan, an increase of 7.8%; tertiary industry contributed 17.5975 trillion yuan, an increase of 8.4%. From the chain perspective, the three-quarter GDP growth reached 2.2%. As a result, the overall national economy from the first three quarters has realized steady growth and enjoyed good momentum.

China’s broadband penetration rate is less than 14%

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According to Xinhua News Agency, currently 156 million people in mainland of China are broadband users, meaning to say that the penetration rate of broadband internet service in China less than 14%, far lower than the average penetration rate of 30% to 40% in the developed countries. The industry average access bandwidth in China is 1.8 megabits per second (Mbps), less than 1/10 of the average bandwidth in the OECD members.