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Debt Increase Questions China’s Economic Return

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Debt Increase Questions China's Economic Return

The movement in China’s property market has been contagious to other areas, especially construction spending and industrial activity. This motion triggered to produce signs of stability for the past couple of months.

Based on the latest consumer price data on Tuesday, it is indicating that inflation is stable above 2%. Together with this, productivity in April went down at their slowest speed in over a year making it easing anxieties of deflation.

It seems that is really showing some good signs. However, the other side is also telling the problem with this recovery is that it is driven by debt. This would be an unsustainable solution for an economy already been having some complications. What more could happen?

Global investors have cheered the recent signs of economic survival in China. However, some analysts are still unimpressed. Although they opt the growth of China’s economy,increasing debt rate serves as a threat to the Country’s financial system.

Statistically, China’s new credit increased a record 4.6 trillion yuan ($712 billion) in the first quarter. This surpassed the level of 2009 during the depths of the global financial crisis. Total debt from companies, governments and households were 247 percent of gross domestic product last year. Much higher again than that 164 percent in 2008.

Unto the culprit, instead of focusing on reducing debt levels, Chinese policy makers choose to open up the lending tap whenever the economy slows. Thus, this policy weakens the credibility of President Xi Jinping’s administration as a reformer.

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