China Briefing | Can Xi Jinping head off the grey rhinos in China’s economy?
Fears of a crisis bring a new sense of urgency to a long-festering ‘financial mess’
Common sense goes that the first step in solving any problem is recognising there is one. But if one ignores the problem and allows it to balloon to the edge of a crisis before recognising the severity of the issue, that means common sense has long gone out the window and all one is left with is a mess or even worse.
That is what has happened with China’s massive and fraud-ridden financial system in which a herd of “grey rhinos” brazenly grew, charged around, and punched big holes, threatening to sink the system with a full-blown systemic crisis.
How Xi Jinping won a stronger mandate to lead China
In contrast to so-called “black swans” – unforeseen events with extreme consequences – “grey rhinos” refer to the major financial and economic risks that are highly visible and highly consequential but ignored even so.
Now Xi is on it and suddenly Chinese officials have owned up that there were indeed many grey rhinos in the system: local government debts, shadow banking, real estate bubbles, highly geared debt loads at state-owned enterprises, illegal fundraising through Ponzi and pyramid schemes rampant throughout the country, and the list goes on.
None of those problems is new, though, and international financial agencies have for years warned about the dangers of failing to tackle them.