China's economic growth is slowing, property prices in some smaller cities are declining and some companies are starting to default. But Changyong Rhee, director of the International Monetary Fund's Asia and Pacific Department, believes the odds of China suffering a full-blown financial crisis remain low.
In an interview, Mr. Rhee outlined a number of reason not to sound the alarm bells:
1. China's owes most of its debt to itself. True, China's debt -- some tallies put the sum of private and government debt at double China's gross domestic product -- is scary. How companies and local governments will manage to service that debt as growth cools and interest rates rise is a puzzler. The IMF's latest Regional Economic Outlook, released Monday, predicts China's economic growth will slow to 7.5% this year from 7.7% last year, then further to 7.3% in 2015.
Mr. Rhee says China is bound to see a rising number of credit defaults. But unlike Thailand or South Korea before the Asian financial crisis erupted in 1997, China hasn't borrowed heavily abroad in foreign currencies. China's total foreign debt amounts to only about 9% of its GDP, according to the country's foreign-exchange regulator. South Korea's was roughly one-third of GDP back in 1997.
That means that if China's currency falls further (it has dropped roughly 3% so far this year), it won't necessarily cause a dramatic increase in borrowers' debts in local-currency terms that then causes bankruptcies to snowball.
2. China's government debt is low. Like many governments in advanced economies, Beijing runs a budget deficit. But that deficit is relatively small -- about 2.1% of GDP. And total government debt, both those owed by the national government and China's much more heavily indebted provinces, still add up to only about 53% of GDP, according to Bank of America Merrill Lynch. Compare that with the U.S., where government debt is roughly as big as GDP, or Japan, where government debt has ballooned to roughly 240% of GDP.
That means China can afford to spend more to offset the economic slowdown if it becomes too painful to borrowers. It can even afford to bail out banks or borrowers it deems too big to fail. In the worst case scenario, China's central bank can follow the lead of the U.S. Federal Reserve and the Bank of Japan and create money by buying up assets -- a policy known as quantitative easing. 'If something bad happens, they will muddle through,' said Mr. Rhee.
3. China's slowdown, like its economy, is central planned. While it's easy to overestimate the degree of control Communist Party leaders have over economic decision making on the ground, they nonetheless are able to exert their influence in a way that policy makers in the United States and other democratic nations can only envy.
The U.S. Congress rebuffed former Treasury Secretary Henry Paulson's first plan for halting the financial crisis in late-2008. China's economic mandarins have much wider latitude to implement policy without the say-so of China's National People's Congress. Most of the country's banks are state-controlled and state-run companies still dominate the economy.
China can instruct banks how to lend and to whom, and can even tell big companies how and where to invest. That's a solution China's leaders seem eager to avoid, but it remains an option. On the contrary, central bankers in the U.S. and Europe have found that even record-low interest rates could not compel banks to lend or companies to borrow, a situation that made their economic crises worse.
Does that mean China can sit back and do nothing? Absolutely not, said Mr. Rhee. China needs to stay the course of overhauling its economy to reduce its reliance on exports and investment in property and heavy industry.
China also needs to keep withdrawing cash from its economy to gradually push up interest rates and deflate its credit bubble, Mr. Rhee said. Developing insurance for bank deposits, he said, will help reduce the widespread misperception in China that the government stands ready to bail out any borrower. That myth has helped encourage excessive lending, both by banks and the unregulated non-bank financial sector -- so-called shadow banks.
'The process will be bumpy,' Mr. Rhee warned. Defaults are inevitable. But rather than unleash a wave of new credit as China did in 2008 to offset a global slowdown, China should rely on small remedies - 'micro-surgery' as Mr. Rhee put it - to stem financial contagion.
1. 中国的债务大部分属于内部债务。诚然，中国的债务水平令人担忧，有数据显示，将中国民间和政府债务加总后，规模是中国国内生产总值(GDP)的两倍。随着经济增长放缓和利率上升，企业和地方政府将如何偿付这些债务成了一个难题。周一，IMF发布的最新地区经济展望(Regional Economic Outlook)预测中国今年经济增长率将从去年的7.7%放缓至7.5%，2015年增长率进一步放慢至7.3%。
2. 中国政府债务水平低。与许多发达经济体一样，中国政府的预算呈赤字。但赤字水平相对较低，仅达到中国GDP的2.1%左右。据美银美林(Bank of America Merrill Lynch)，包括中央政府和负债更高的地方政府在内，中国政府债务总额占GDP的53%左右。与此形成对比的是：美国的政府债务与GDP基本相当，而日本的政府债务大约是GDP的240%。
这意味着，一旦借款方处境窘困，中国有能力增大支出力度，抵消经济增长放缓的影响。中国甚至有能力救助银行或政府认为大到不能倒的借款者。如果最糟糕的情况发生，中国还可效仿美国联邦储备委员会(Federal Reserve,简称：美联储)和日本央行(Bank of Japan)，通过购买资产来增加货币供应，即实施量化宽松政策。李昌镛说，如果不幸的事情发生，中国能够应付，转危为安。