SHANGHAI — China’s debt buildup could lead to instability in foreign exchange markets, the real estate market and stock markets, according to a front-page story in the Chinese Communist Party mouthpiece People’s Daily published Monday.
China needs to prioritize dealing with its bad loans today, and drop the “fantasy” of monetary easing as a way to stimulate economic growth, the story said, citing an interview with an unnamed “authoritative person.”
Just last Friday, brokerage CLSA released a report stating that Chinese banks’ bad loans are nine times bigger than official numbers indicate. CLSA describes the debt buildup as an “epidemic” that could result in losses of more than $1 trillion.
Another major focus of the People’s Daily interview was its emphasis on the importance of ongoing supply-side structural reforms, outlined by the central government in March.
Despite acknowledging challenges on many fronts, the unnamed authority interviewed by People’s Daily had a positive overall message about the future prospects of China’s economy, saying the “step back” would lead eventually to the country being able to take “two steps forward.”