Credit boom has created vast swathes of unused assets
As with all booms, the trick is in timing the end of the boom – these events can, and do, last considerably longer than expected. Most recently a number of question marks have arisen about the size of the Chinese FX reserves. In particular, whilst reserve levels of over US$3 trillion sound high, the IMF’s own calculation for adequate reserves suggests that China needs US$2.7 trillion. If correct, then China’s ability to control its own destiny is arguably becoming increasingly limited (i.e. policy makers face the classic economists trilemma). That would represent a significant risk for global markets. I would also add that the question marks rightly surrounding the Eurozone banking system are also a significant concern and equally major risk factor.
3 topics