China’s Financial Problems Could Destroy Your Retirement

China is one of the United States’ largest international creditors. And, while it’s nice of them to lead us money, it looks like their economic activities could come back to bite them and China’s financial problems could destroy your retirement.

Addiction to credit may mean China’s financial problems could destroy your retirement.

China’s financial problems could destroy your retirement

While the Chinese government has passed many reforms allowing a more robust competitive economic environment to develop, these changes are coming slowly and — combined with low deposit interest rates — have forced many Chinese to turn to other, more risky investments.

China’s economy has become a credit junkie, requiring increasing amounts of debt to generate the same unit of growth. Between 2007 and 2012, the ratio of credit to GDP climbed to more than 190%, an increase of 60 percentage points.” In 2012, new credit to the non-financial sector totaled 15.5 trillion, that’s equivalent to 33 percent of 2011 GDP.

What does that mean and why should we care?

A lot of China’s debt is supported by real estate which is put up as collateral for the loans. Banks’ official exposure to property is listed as 22 percent of the loan book. But that doesn’t account for exposure to real estate through their loans to local government financing vehicles (LGFVs) and off-balance sheet credit instruments.

Sudden drops in real estate prices caused a jump in debt problems and non-performing loans.

Oh yeah. A real estate bubble. You remember what that’s like, don’t you.

As we struggle to rebuild our own economy, the US is very susceptible to economic trends around the world. If it’s economy crashes — or even just dips substantially — China’s financial problems could destroy your retirement.

Click here to read more about how China’s financial problems could destroy your retirement.

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