Xia Bin, a State Councilor with China’s State Council, recently made a speech in Shanghai in which he predicted that China’s growth will slow down over the next three years and China’s economy will fall into a severe depression.
Xia indicated that the authorities will try to ensure a 7.5 percent rate of growth in China’s GDP this year, but, based on statistical analysis, the growth will slow down this year, next year, and the year after that. The financial reform has not been put in place. However a large amount of funds for infrastructure has been raised, resulting in local government debts that have become a very serious social issue. Creditors hold sit-ins in front of local governments demanding payment.
Xia said he believes that the real estate boom has ended and that falling house prices have become an inevitable consequence. He predicted that, in the next two years, the growth rate may slide below 6 percent and China will be in a severe depression.
Xia said that companies and local governments have engaged in Ponzi schemes. They borrow money only to service bank interest rather than to make new investments. The high financing cost of money is not just the problem of banks; it is a problem for the entire system.
Source: East Money, November 26, 2014