China Is at a Critical Tipping Point

Asia Pacific
Nouriel Roubini: China Is at a Critical Tipping Point
China's growth model is not sustainable but many of the
necessary reforms are on hold. "President Xi first wants to
consolidate his power, before tackling them," says economist
Nouriel Roubini. Watch our exclusive video interview to find out
more.
China's growth has been slowing down. Why do you think this slowdown will continue?
Nouriel Roubini: Even the Chinese authorities realize that their growth model, which contains
too much saving, too much investment, and which is highly capital intensive, is not sustainable.
No country in the world can be so productive that it can take half of its annual GDP and invest it
into new capital stock. Doing this causes three problems: firstly, a high number of bad assets in
the banks and the shadow banks and many bad investments in real estate and infrastructure.
Secondly, excess capacity in industrial manufacturing; and finally, rising bad debts in the private
and public sector. The debt ratio of the private and public sector in China today is 250 percent of
its GDP and rising.
China is aware that reforms are necessary. They have to redistribute income to the households in
order to increase consumption and decrease investment. If that happens, in combination with a
declining and aging population, growth will have to slow down as the service sector becomes less
productive than capital­intensive manufacturing. If, instead, the rebalancing is delayed, which
there is talk of at the moment, then there is a risk that the financial cost of cleaning up the bad
assets, bad debt and excessive investment will lead to a bumpier and rougher landing of the
Chinese economy. Either way, a growth rate of 5 percent to 6 percent is expected over the next
couple of years.