A lesson of history is that bubbles eventually burst. A bursting of stock and real estate bubbles in China would be disastrous for the Chinese economy , for the banks, for Chinese individuals, and for the ability to tap into foreign-financed domestic activities and business development. Heady years of growth and asset price appreciation would end and Chinese policymakers be ill- equipped to deal with the fallout . The declines in credit, cutbacks in consumption, increases in unemployment, and drying-up of external finance that would ensue would take China’s growth down to the low single digits, leading to social and political unrest . The direct and indirect demands for the exports of other countries would hugely contract—Japan, South Korea, Singapore, and the United States, for example . A global recession and stock market collapses could well occur. In turn, numerous economies in Asia, central Europe, some in Latin America such as Brazil, and the United States would fall into recession . A bubble-driven Chinese economy that bursts ultimately would prove the undoing of any global expansion. Specifically a Chinese downturn affects Asia – interconnected economies Norbert Walter 10 - Managing Director, Walter and Töchter Consult, and Chief Economist Emeritus, Deutsche Bank (“ If the Chinese Bubble Bursts…” Fall 2010, ) hk Assuming the Chinese real estate and stock bubbles burst, this would result in weak investment and a slowdown in consumption. The banks as the main financiers would find themselves in deep trouble, with piles of bad loans. Lending would be tightened as a consequence, which would reinforce the above-mentioned trends . Unemployment would rise dramatically . The authorities would extend low interest rate policies and would step up government spending programs. The People’s Bank of China would use all levers (including capital controls) to limit appreciation of the yuan . A Chinese downturn would hit its Asian neighbors hardest . Japan would be the number-one casualty due to its extensive deliveries of capital and consumer goods to China . Another major casualty would be the developing world, especially countries that supply China with natural resources. The manufacturing sector and suppliers of agro- products both would be major casualties. Africa would lose a very important engine of growth.
2nc --- CCP Collapse --- Impact Collapse of Chinese assets leads to CCP collapse Gary Hufbauer 10 - Reginald Jones Senior Fellow, Peterson Institute for International Economics (“ If the Chinese Bubble Bursts…” Fall 2010, ) hk Collapsing Chinese asset values would devastate China and many millions beyond the Middle Kingdom .
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