Debt crisis possible in 2012 – Victor Shih

China’s debts, caused by its massive rescue plan of the past few years, might trigger off a crisis as debts rise to almost 100 percent of its GDP in a worst case scenario, says professor Victor Shih in Business Week.

“The worst case is a pretty large-scale financial crisis around 2012,” said Shih, a political economist at Northwestern University in Evanston, Illinois, who spent months researching borrowing transactions by about 8,000 local-government entities. “The slowdown would last at least two years and maybe longer…

By Shih’s count, China’s debt may reach 39.838 trillion yuan ($5.8 trillion) next year. His forecast for debt-to-GDP compares with an International Monetary Fund estimate for China of 22 percent this year, which excludes local-government liabilities. The IMF sees Spain at 69.6 percent, the U.S. at 94 percent, Greece at 115 percent and Japan at 227 percent.

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Victor Shih is a speaker at the China Speakers Bureau. When you need him at your conference, do get in touch.