Price Waterhouse Coopers (PWC) in a recent report disclosed that the bad debt problem already facing the 10 largest Chinese banks is only growing. According to their data, in the first half of 2012 alone delinquent loans grew 333% since the end of 2011. Different accounting rules and systems along with rampant corruption also plague the system, making it far more opaque to foreign investors seeking to capitalize on the rapid growth that materialized over the last decade. Growth may slow below the famed 7% threshold believed to hold the key to keeping citizens employed and providing continued stability according to Beijing economist Yuan Gangming.
Future expectations are the source of many investing philosophies which is why discussion of “hard-landing” and “soft-landing” scenarios have been floated around by most talking heads and Asian analysts as distinct possibilities. With a once-generational Chinese leadership transition to the 5th generation rapidly approaching in mid-October, will the policies and stewardship of the previous communist leadership carry the nation into the next era of growth and expansion? Or will the efforts go unnoticed as rapidly emerging threats to continued exponential growth prove hurdles that cannot be overcome? Chinese stock indices and the Australian economy have traditionally served as bell-weathers of the China thesis. Have these markets overheated with expectations?
With what could be the “canary in the coalmine” moment , the newly announced subsequent round of global easing has yet to be fully evaluated for its efficacy and success in promoting growth globally. The “wait and see” attitude that will prevail over the next few months will certainly paint us a clear picture of the future economic prowess of China.
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