An interesting article by Gwynn Guilford appeared on Quartz drawing links between China’s “debt service ratio” (DSR), which compares private debt to GDP, and the possibility of a looming financial crisis. The article shows that other countries have also had recessions preceded by the buildup of private debt. By comparison, the DSR in the U.S. was relatively high at 27% just before the economic plummet in 2008, indicating that China’s debt levels are cause for serious concern. Guilford suggests that the Chinese government’s promise to prop up companies during hard times has incentivized risky borrowing. Financial liberalization could provide a long-term solution. Read the whole article (September 20, 2013)

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