Anything bad for China can only be good.

Economists frequently warn us that if something seems too good to be true then it probably is. This is usually a warning to keep away from Ponzi type schemes which promise mouth-watering returns to tempt gullible investors. A similar logic operates in relation to China. Starting from desperate poverty after Mao's Cultural Revolution China has grown at a phenomenal pace for 4 decades to become the second largest economy in the world. A fantastic infrastructure has been built and millions of people have been dragged out of poverty, not through corrupt social schemes as in India, but by providing jobs in an export driven manufacturing sector, as China has become the factory of the world. With rising wealth has come rising consumption but inflation is at a comfortable 2.5%. All of this looks too good to last and some, including billionaire investor, George Soros, have been warning that a fall could come at any time. Are these people carping because they are ' running dogs of capitalism ' or is there some truth in what they say? Seems that China's total debt has risen from 125% of GDP in 2008 to 215% of GDP in 2012, from a total of $9 trillion in 2008 to $24 trillion today, which is more than the total debt of the US which is at $18 trillion. Thus China's debt has grown by $15 trillion in 5 years which is equal to the entire US commercial banking sector. Such a huge debt needs more money to be serviced so when the People's Bank of China decided to limit further lending the financial system came to a halt as interbank lending rate soared to over 10% in June and then again in December last year. The PBOC hastily injected $55 billion to calm the market. A large part of the economy is dependent on construction, whether of domestic residences or infrastructure and is heavily reliant on debt. Banks only show bad loans of less than 1% but this is because most of the debt is rolled over with more debt. If this is true of China it is true also of India. Indian banks show Non Performing Assets of 4.2% at Rs 2.30 trillion but how much is hidden by evergreening, which means issuing new debt to cover the old one and taking it off the books, is not known. At least China has built up a state of the art infrastructure while a large part of our debt has just been stolen by the very rich who have political support. The only good thing is that China being a harsh dictatorship any economic slowdown could lead to social breakdown. Let us pray it happens.