International Business A Financial Crisis, World s Top...

ID: 9970760 BMAN10931 Financial Innovations in International Business Assessed Essay Question, Semester 1, 2016-2017 Article chosen: ‘China facing full blown financial crisis, world’s top financial watch dog warns’ Introduction The author warns of the existence of a bubble in the Chinese economy that will eventually result in a financial crisis. I agree with this position as this warning is based on solid facts that prove China’s credit vulnerability, and show the huge debt that the Chinese economy has accumulated in its effort to maintain its growth that could lead to a devastating banking crisis. Summary The article suggests that the debt driven growth of the Chinese economy for many decades will cause a banking crisis. The Chinese†¦show more content†¦After the economic reforms of 1978, China gradually became the manufacturing hub of the world and its GDP catapulted from 214 billion USD and 9th in the world to almost 11 trillion and 2nd in the world in 2015 (focus economics, 2016). China’s financial system has managed to sustain this rapid economic growth for many years, mostly through the appropriate allocation of capital (Yan, 2013). The Chinese financial system has many differences from the ones of other economies as it is closely tied with national and regional governments who can dictate most of its activities (Yan, 2013). It is controlled by the large state owned banks which handle more than 70% of the savings and credits in the Chinese economy (Yan, 2013). The five largest banks that provide almost half of the total loans in the Chinese economy are majority owned by the central government while the government holds stakes at many of the other banks (Yan, 2013). For many years the major banks have been used by the government as pools of unlimited capital for the country’s state owned enterprises (Yan, 2013). With the use of the implicit government guarantees the government prevents the large state owned enterprises from defaulting on their loans (Yan, 2013). This makes it possible for the state enterprises to acquire a large quantity of loans as they are considered a safe debtor by theShow MoreRelatedP ossible Exam 310042 Words   |  41 PagesQuestions True or false: 1. Due to insurance arrangements and the securitization of mortgage investments, many U.S. bankers did not adequately gauge the risks of subprime loans. TRUE 2. A commonly accepted theory is that the Subprime lending crisis was due the Government placing more restrictions and regulations on the investment banking industry starting in 1999. FALSE 3. For the most part, the credit ratings granted to mortgage-backed securities did not accurately reflect the true riskRead MoreCase Studies67624 Words   |  271 PagesCASE 7 ABB in China, 1998 C-16 Ansett Airlines and Air New Zealand: A flight to oblivion? 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