China is likely to have a financial crisis, as its citizens’ savings growth rate turned negative last year for the first time, according to a Chinese financial expert.
According to the statistics from the Central Bank of China, from January to November 2017, citizens’ savings increased by 3.82 trillion yuan ($608 billion). Compared to the increase of 4.54 trillion yuan ($723 billion) during the same period in 2016, savings decreased more than 700 billion yuan ($115 billion)—almost 16 percent.
Li Yang, former vice president of the state-run Chinese Academy of Social Sciences and chairman of the Beijing-based think tank National Institution for Finance and Development, made some predictions about the future of China’s economy during the Bo’ao economic forum, an annual summit for leaders in government, business, and academia throughout Asia, held this year on the island of Hainan, China.
While answering a reporter’s question on April 9, Li said that if the negative growth rate continues, citizens could incur large amounts of debt. Similar conditions—leading to the collapse of a housing bubble—led to the subprime mortgage crisis in the United States back in the late 2000s, which precipitated the Great Recession.
To avoid a financial bubble, Beijing’s central planners then tightened housing regulations and lending at the beginning of 2017. Banks increased mortgage rates above the central bank’s benchmark lending rate of 4.9 percent.
Because of the high housing prices and mortgage lending rates, Chinese citizens had to spend much more of their savings on their real estate investments.
“Economic growth will have to depend on the central government (i.e., central bank) to release more money. It indicates that the economy is already highly unbalanced,” Li said. With more money in circulation, the currency’s value drops.
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