Debt is a doubled-edged sword

Debt is a doubled-edged sword. On the positive side, it can accelerate growth and development. But if not controlled well, it can lead to severe financial crises. And history is proof. Almost all financial crises have their roots in excessive debt. 

This is what worries people about China. The rapid pace at which it has grown its economy is indeed commendable. But now, it is sitting on a massive debt pile. And there is no quick fix solution for such a debt problem. 

An article in CNN Money validates our concerns. In the aftermath of the 2008 financial crisis, Chinese policymakers eased credit and doled out several stimuli. And now, the dragon economy is finding it tough to curb the fast mushrooming corporate and government debt. 

Take the local government debt for instance. As per certain estimates, local debt stood at close to 20 trillion yuan at the end of last year. That's nearly one-third the size of China's GDP. 

What is even more worrying is that this figure has almost doubled in just 3 years. The latest set of numbers from a nationwide government debt audit is expected shortly. We wouldn't be too surprised if we witness a major financial crisis in China anytime soon.