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Chinese economy’s woes unlikely to cause global upheavals in coming years

July 20, 2015, 19:32 UTC+3 Alexandrova Lyudmila

MOSCOW, July 20. /TASS/. China’s economic woes have intensified lately but their scope is frequently exaggerated in Western publications, Russian experts say. They do not predict any serious upheavals for the global economy and economic cooperation with Russia in the coming years. However, a spillover from the Chinese stock market may create serious problems for China’s economy, experts warn.

Following the recent collapse of the Chinese stock market, the news of China’s enormous corporate debt caused uproar. International rating agency Standard & Poor’s (S&P) released calculations on Sunday, showing that China’s corporate debt hit $16.1 trillion or 160% of the country’s GDP and might grow to $28.8 trillion in five years.

China’s GDP grew by 7.4% in 2014, the worst indicator in the past twenty-five years. Year on year, China’s GDP expanded by 7% in the first six months of 2015.

However, hardly any upheavals can be expected for the global economy from China’s economic woes in the next two or three years, Senior Researcher at the Russian Institute of Strategic Studies Vladimir Blinkov said.

"As for the condition of the stock market, it has stabilized," the expert told TASS.

"Meanwhile, the debt problem is not new. After 2008, China started massive investments in the domestic economy and this measure helped maintain fairly high growth rates while all other countries were hit by a crisis. As a result, the corporate debt increased. Corporations in China are mostly state-owned businesses and debt settlement is a problem that has no relation to a market economy," the expert said.

The fears fuelled in the West are somewhat exaggerated, the expert said.

"They [in the West] like writing about China in negative terms recently. Social upheavals will allegedly start there, if the economy grows less than 7% But it would be great, if all of them had this 7% growth. The point is that no one can demonstrate double-digit growth rates all the time," the expert said.

The Chinese will start paying attention to the debt problem and resolving these woes gradually, although this may affect the economic growth rates, Blinkov said.

As for Russian-Chinese cooperation, China’s economic problems will not have any effect on it "in a prospect of several years," the expert said.

"There is no sense in curtailing cooperation with China. On the contrary, it is more likely that the Chinese will behave more loyally amid difficulties compared with the current situation when they are holding quite tight positions. And, perhaps, we [Russians] will strengthen our positions in these conditions," the expert said.

"Despite periodic reports about difficulties experienced by the Chinese economy, China has demonstrated more than once its ability to cope with emerging economic problems," Senior Researcher at the Russia-China Center of the Institute of Far Eastern Studies at the Russian Academy of Sciences Sergey Uyanayev told TASS.

"As an example, we can cite slower economic rates, which are mentioned today as a somewhat unexpected thing. However, the Chinese authorities highlighted this factor already 5-7 years as a problem that should be resolved. This is evidence of the fact that China does not hush up its problems and, importantly, is developing an effective strategy to resolve them," the expert said.

"The stock market crash is an essential factor but it is necessary to take into account the fact that the market showed strong growth before that," Associate Professor of the Chair of World Economy at the Higher School of Economics Pyotr Mozias told TASS.

"An imbalance existed between the state of the economy and an upsurge on the stock market: the Chinese economy has been slowing down in the past few years. What has happened is called a market correction. A bubble emerged on the stock market and it has started to burst in the past month and a half," the expert said.

Nothing terrible will occur, if the correction is limited to the stock market, the expert said.

But if it spills over to associated segments like the real estate and bond markets, then a chain reaction and a domino effect will follow, he added.

"In this case, bottlenecks will indeed start to emerge all across the Chinese economy, which has a lot of weak points," the expert said.

This will also exacerbate the corporate debt problem, he added.

"The corporate debt is very large — 160% of GDP while the dangerous threshold is considered at the level of 90% of GDP. This is the result of the anti-crisis policy they [the Chinese] carried out. They flooded the economy with money in 2008 and 2009 and got a time bomb in the form of the corporate debt amid a sharp slowdown in economic growth rates," the expert said.

Nothing terrible will happen, if China manages to localize the stock market problems, Mozias said.

"But if it comes to a chain reaction, then problems may emerge. In this case, this would affect both the entire world and Russian-Chinese cooperation because the demand for raw materials would fall," the expert said.

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