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Economy

How China can ward off financial crisis

Right policies on debt could help Beijing confound the pessimists again

| China
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China's debt has grown consistently faster than its gross domestic product, raising concerns.   © Reuters

With emerging Asian economies now accounting for nearly two-thirds of global growth, China bears have a ready audience for their gloomy prognostications. Some, like the high-profile U.S. economist Tyler Cowen, have been predicting imminent financial collapse for some years. Others, such as the International Monetary Fund, the Organization for Economic Cooperation and Development, and the Bank for International Settlements, have registered rising concern as China's debt has grown consistently faster than its gross domestic product -- a classic forewarning of financial crisis.

Everyone, not least the Chinese authorities, understands that this rising debt ratio cannot continue and that the longer it goes on, the greater the risk of a serious crisis. But just how is it likely to work out?

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