Chinese Financial Crisis

China heading for financial crisis, says US economist

Want China Times,

21 August, 2012

Protesters in Chengdu on Sunday call for Japan to quit the disputed Diaoyu (Diaoyutai) islands in the East China Sea. Beijing may get into an armed conflict over territorial disputes to deflect popular discontent, Chevanec writes. (Photo/CNS)

Patrick Chovanec, an American associate professor of economics at Tsinghua University in Beijing, has highlighted a number of issues regarding China that the next US administration, whether led by Barack Obama or his Republican challenger Mitt Romney will be required to address, according to Duowei News, an outlet operated by overseas Chinese.

First, Chovanec believes that a financial crisis will be faced by the Chinese government before the end of this year. "The investment bubble that has been driving Chinese growth has popped and there are no quick 'stimulus' fixes left," he said. Second, on China's imminent leadership changeover he says, "The transition will take place but it has paralyzed the Chinese leadership's ability to respond to the country's growing economic troubles."

The government in Beijing does "not 'get' how serious and urgent the situation is,and that what has always 'worked' is no longer working," Chovanec said.

Lastly, Chovanec said that the coming economic crisis will bring another three challenges for the United States to maintain the stability and security of the Asia-Pacific region. First, China will boost its exports by devaluing its currency, inflaming discontent among US politicians who hold that the Chinese currency is already undervalued and contributed to an unfair trade deficit. Second, tensions and imbalances in the global economy will be reinforced with the tactic used by the Chinese government to dump excess capacity in steel and other products into the export market. Third, Beijing may launch a conflict over the disputed South China Sea to redirect popular discontent at home onto an external focus.

Chovanec said his report was not written with the intent of provoking the current Chinese leadership as it would be a disaster for the United States and the world if China were to become unstable. It would be in the interests of all if the new leaders of China and the leaders of the United States, whatever their political affiliation, can find a better way forward, he said.