China could spark world financial CRISIS with infrastructure programme, experts warn

Thursday, August 24, 2017
By Paul Martin

CHINA’S debt levels are rising by billions of pounds to fund a gigantic ‘belt and road’ infrastructure programme, which could take down the world economy if it fails, experts have warned.

Thu, Aug 24, 2017

The ambitious programme aims to bring Silk Road trade routes – an ancient network of trade paths – back to life.

State-backed banks in the world’s second largest economy are raising billions of pounds worth of investment to push the initiative through.

But it comes at a time when worries over China’s debt levels are already gathering pace.

The Asian country’s debts now sits at an eye-watering around 240 per cent of its economy GDP – and predicted to rise to 300 per cent by 2022.

The IMF recently issued calls for China to tackle its credit binge and he Bank of England has warned the country’s debts are a key risk to stability.

Yet Beijing appears to be taking fresh risks with the Belt and Road initiative.

And if projects fail and loans default, the fallout threatens to take down the world economy, experts fear.

Bjorn Conrad, vice president at the Mercator Institute for China Studies, told CNBC: “A risk to China’s banking system is, by default, a risk to the global banking system.”

According to CNBC, Xu Chenggang, professor of economics at Cheung Kong Graduate School of Business, added: “The impact could be damaging not just for China, but for the global financial system.”

“These loans are being extended to governments in risky countries to fund risky infrastructure projects.

“If the projects were launched by private firms we wouldn’t have to worry because they would know they had to bear the consequences.

“But here we are talking about government-to-government lending and, ultimately, intergovernmental relations.”

Beijing already props up large number of companies resulting large numbers of so-called zombie firms that don’t fail – but would have under normal market conditions.

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