China has just surpassed the U.S. as the world’s largest economy, but that does not mean it is a country with endless resources to spend on its own projects and welfare programs. China’s central bank is cracking down on lending, which could be bad news for countries like Greece who need loans to stay afloat.
If China is no longer going to be supplying the loans of the future, who will? The U.S.? They just announced that their credit rating has been downgraded from AAA to AA-plus. Britain’s had its problems, too. Their banks already have a shaky foundation after being co-conspirators with Greece in hiding Greek debt. Europe has a few more options, but they’re not exactly reliable.
In short, everyone is looking for an economic bedrock from whom to borrow from and China was that foundation until very recently. Now that it seems as if their pockets are no longer as filled as they once were, the world economy cannot afford to lose its safety net.
The question is whether or not China will continue to play the role of lender. Over the past decade, they have been lending billions, if not trillions of dollars to countries that need money for wars, infrastructure and more. What if China decides that it no longer wants to be a world lender how big of a hole would this leave in the world economy?
China’s central bank recently stated that it was going to crack down on lending. They say this is because too many loans are being made in China. Some experts believe they are making these claims simply to encourage investors to put their money into stocks instead of loans for businesses or organizations, but others see it as something more sinister.
If China is trying to push investors into the stock market by making it seem like they do not want people to be lending money, it would make sense that they are nearing a recession. If this is the case, then perhaps it will become even harder for countries to get loans from China.
China has been accused of manipulating their economic numbers to make it seem like they are in better shape than they actually are which has led many countries to depend on them to bail them out if needed. Now, China may have other problems that are far more important than keeping Greece afloat.
China’s recent about-face over lending is indicative of a larger problem, but whether or not they will continue to play the role of lender remains to be seen. China taking their foot off the gas pedal could result in a devastating outcome for Greece and many other countries who have come to depend on them in recent years.