China's Ponzi scheme - Victor Shih

Charles Ponzi via Wikipedia

Victor Shih by Fantake via Flickr

China's economic growth might look encouraging, but financial and political experts like Victor Shih warn in Forbes for what is really keeping the economy burning.

"It's a Ponzi scheme whose head is the central bank, and it can print money," says Victor Shih, a China expert at Northwestern University.

And with any Ponzi scheme, the question is when it falls apart.It's economy has been developing many bubbles:

Related-party transactions are another popular funding source. Hainan Expressway Co. in southern China is a government-owned outfit deep in hock. In the last year it has lent some $40 million to its founding shareholder, the Hainan Department of Transportation, and booked the loan due as an asset on its balance sheet. This classification provides the Hainan Expressway with additional collateral to borrow even more in new construction loans from state-owned financial institutions and increases the risk that it will eventually default, according to Northwestern's Shih.

More in Forbes.

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

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