Beijing is burning through its foreign reserves to prop up the yuan and prevent a currency outflow crisis, and the country is undergoing a real estate bubble. Eventually, something’s gotta give.

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HOUSE OF CARDS: Forget the trade war, China’s economy has other big problems.

The Chinese economy expanded rapidly in the years after the global financial crisis thanks to repeated debt binges.

“China’s growth has been highly credit intensive,” said Gerard Burg, Sydney-based senior economist at National Australia Bank. The total amount of debt in the Chinese financial system is now several times the size of the entire economy.

Some of this money has gone into building bridges, road and other infrastructure. But a lot has ended up in less productive parts of the economy, such as big, inefficient state-run companies. The more dynamic private sector hasn’t benefited as much.

Late last year, Beijing stepped up its efforts to rein in the high levels of debt, which is one of the main reasons the economy is now losing momentum.

Some analysts are skeptical about the Chinese government’s commitment to cleaning up its financial system, especially as the slowdown deepens and the trade war intensifies.

One party rule can’t afford a lot of transparency, but a modern economy demands it.

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Plus: Beijing is burning through its foreign reserves to prop up the yuan and prevent a currency outflow crisis, and the country is undergoing a real estate bubble.

Eventually, something’s gotta give.

h/t SG

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