Analysis on the Current Status of the Chinese Economy
-Focusing on Debts·Real Estate·Shadow Banking
Published on 27 December 2018
Published by Macro-Economic Analysis Division of the Economic Analysis Bureau
The Chinese economy has realized significant growth through its open reform policy and introduction of a market economy system in the late 1970s, but the internal side-effects accumulated throughout the period of strong growth have now become factors threatening sustainable growth. Maintaining a stable growth trend in China is a crucial factor for the Korean economy to enjoy strong growth since Korea is sensitive to the global economic environment and highly dependent on China. This report examines the tasks currently faced by the Chinese economy with a focus on recent outstanding issues such as Chinese debts, the risk of real estate price decreases and risks associated with shadow-banking. As a result, even though it is unlikely that the sudden rise of Chinese corporate and household debts will actually cause financial institutions to become insolvent, resulting in a financial crisis, it appears to be time to undertake strong financial reforms in order to drive long-term sustainable growth and mitigate the negative impacts on the economy. The risk of a real estate price collapse is unlikely to come about, but should real estate prices decrease excessively, we should be mindful of how this may potentially cause shocks to reverberate throughout the entire financial system including municipal governments, shadow banks and commercial banks. Regarding shadow banking risks, although the risk of an expansion into a systemic crisis is being subdued as the Chinese government is strengthening relevant regulation, caution should be paid to the potential of shadow banking spreading through non-banking financial institutions. Ultimately, the risk factors inherent in the Chinese economy are not individual factors but characteristically appear to be deeply inter-connected and thus cannot be resolved in the near term. In this respect, the Korean economy needs to continually monitor the risk factors related to the Chinese economy as well as develop preemptive measures against the occurrence of potential risks.