That said, the market response seems a bit off kilter. Even though a growing number of economists and strategy experts are moving towards a more negative analysis, they are still very cautious. There are growing worries, but the tendency is to sit on the fence. Apparently hardly anyone in the financial world is bold enough to draw clear conclusions, even though the risks are enormous. The past five years have seen unprecedented growth of total Chinese debt as a percentage of GDP by more than seventy percentage points. This will put the financial system under great pressure if the economy continues to slow down. 

At the same time, everyone knows that state-owned companies and local government are up to their ears in debt and that refinancing is  increasingly difficult. Provincial governments are bankrolling many loss-making manufacturers, especially in the steel, cement and other building materials industries. In addition, their revenue depends on proceeds from the sale of land to real estate developers. Unfortunately, the real estate sector is experiencing a downturn in many parts of China due to disappointing sales combined with a still increasing building stock.

As it has become difficult to refinance debt by taking out new long-term loans, companies and local governments are forced to take out loans with ever shorter terms. To enable this, the central government has pumped large amounts of new money into the economy. This is beginning to be reflected by the declining value of the renminbi. A weaker currency will stimulate the export sector, but that is an effect for the long term. For the time being, it is far more important to consider the risk of capital outflow now that an ever appreciating currency is no longer a given. Capital outflow will lead to further pressure on companies with high financing needs and therefore also on the banking industry.

Viewed objectively, it is increasingly difficult to imagine a scenario where a credit crisis or a drastic slowdown can be avoided. The fact that in spite of this very few analysts are predicting a crisis or recession may reflect fear. Fear of the massive implications of predicting a Chinese crisis for investment portfolios. And fear of the Chinese authorities, who are not keen on critical economists who do not toe the party line.