Though knocked out of the most-read areas off the internet and off the front-pages of news publications quickly as a result of the ongoing earthquake/tsunami-induced crisis in Japan, an official at one of the "Big Three" ratings agencies this week went out on a big limb in predicting that a banking crisis is China was likely by 2013.
No to be outdone by Moody's big ratings downgrades of Greece and Spain early in the week, a senior director from Fitch Ratings dropped a proverbial bomb about the Chinese growth bubble blowing up with the next couple of years. Fitch's Richard Fox reportedly told Bloomberg that he believes China, which continues to demonstrate unprecedented growth across several sectors, carries about a 60% probability for a significant financial crisis within a couple of years.
Growth there has been tracking at levels near an astonishing 20% in recent years. Among the reasons for the prediction are similar to those that helped caused massive downturns in the United States, Ireland and Spain, among other nations: bad/risky loans and drastically overheating real estate values.
However, The Conference Board Economist Ken Goldstein told NACM there isn't reason to put too much credence in the prediction. He suggested China's more important issues in the short-term include quieting international concerns over currency values and the trade surplus and, in the long-term, that the replacements in governing for "geriatric party leaders" may not be as competent as those who've been in power for some time.
"A good deal of debt that state-run banks hold is owed by state-owned enterprise," said Goldstein. "So, while China has things to worry about, an imminent debt-induced banking crisis really isn't one of them."
Brian Shappell, NACM staff writer