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Will there be a financial crisis in China in 2017?

Recently there have been several warnings on the volume of corporate debt in China (by the IMF, Financial Times, etc.), which is likely to affect the country's financial sector because State Owned Enterprises under stress are being "bailed out" by State Owned Banks e.g. through debt restructuring or loan-for-equity swaps.

Indeed the amount of outstanding credit is not only in terms of credit/GDP, but in credit/GDP gap (the deviation from the trend). This measure has been defended as the best predictor of financial crises. As a result, some have even started to argue that 2017 will be the year things come to head – just as other important financial crises took place in years ending in 7.

On the other hand, the Chinese government has recognized the high amount of leverage in the country’s corporate sector, and launched policy measures to reduce leverage (e.g. M&Es, liquidate zombie companies).

While analysts do acknowledge these measures, some argue that they will not be enough. Hence, a key question in financial markets at present is:

Will China’s debt accumulation lead to a crash in 2017?

Resolution is positive if both:


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