Could Mainland China’s Ticking Debt Bomb Destabilize The Global Economy?

Some economic pundits say that debt is just a manageable byproduct of an ongoing economic boom, but could Mainland China’s looming “debt bomb” destabilize the global economy this 2018?

By: Ringo Bones

To anyone familiar with modern economic science will also be familiar with some “Keynesian economic pundits” stating that debt is just a merely manageable byproduct of a booming economy, but could the massive debt pile – often called “Mainland China’s ticking debt bomb” – that is a byproduct of the economic boom that created the world’s second biggest economy the trigger that could destabilize the global economy this 2018? But first, here’s a brief history on how Mainland China’s public and private debt grew to such monstrous proportions as to scare a significant number of economic pundits who just recently acquired a semblance of confidence on the direction of the global economy. 

Back in 2007, around the time when Mainland China overtook Japan as the world’s second biggest economy, both public and private debt stood at around 6-trillion US dollars. Ten years later, the Mainland Chinese public and private debt reached 23-trillion US dollars. What worries some economic pundits the most is not mainly the monstrous debt size but the slowdown in economic growth since the end of the first decade of the 21^st Century as Mainland China moves from a developing to a developed economy. Because Mainland China is now a main driver of global economic growth, the solution to the country’s ticking debt bomb is now everybody’s concern. 

Weaning the nation off that debt without intensifying its ongoing economic slowdown can be tricky. Despite Mainland China’s growing by 6.9-percent in 2017 beating the government target of 6.5-percent growth forecast, it is a mere shadow of the 10-percent or more annual economic growth the country experienced during the middle of the first decade of the 21^st Century. Cleaning up the nation’s banks is one approach. Propping up borrowers to prevent defaults is another, but propping up borrowers could leave the country mired in bad debt and make it susceptible to years of economic stagnation like what happened to Japan that started back in 1991 which it has just more or less recently recovered.