Debt to GDP Ratio and the Asset Bubble
This paper will examine the possibility of China experiencing a hard landing and the reasons behind it. China experienced three decades of tremendous economic growth. However, as expected, this is coming to end. But the manner in which this economic growth ends and how the government handle it will determine whether or not China experiences a hard landing. Up until 2007, China’s growth relied mainly on exports and investments. However, China’s growth is slowing down and the government’s response may be exacerbating the underlying problems in order to maintain their policy of achieving growth. The government have increased investment, which led to a record high investment to GDP ratio. Unless the government is willing to adjust their priorities (mainly maintaining a high growth rate), and implement some tough decisions (such as disinvestment, market oriented reforms, and employment adjustment), then China is likely to experience a hard landing that will affect the world economy at large. However, due to the government’s complete control over the economy, it could be argued that China is well suited to weather this storm, if the right decisions are implemented.
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