Anthony Rowley

Macroscope | It’s not just China, the world is at risk of hidden debt and financial system shocks

Why is a spotlight focused on everything ‘bad’ in China while adverse developments elsewhere are treated as though they were happening on the dark side of the moon?

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People are seen on Wall Street outside the New York Stock Exchange in New York City in March 2021. The Financial Stability Board has warned of “further challenges and shocks” in coming months as high interest rates undermine economic recovery and threaten key sectors, including real estate. Photo: Reuters

Anthony Rowley

Published: 3:30pm, 16 Sep 2023Updated: 1:01pm, 19 Sep 2023

We have been hearing a lot about China’s property sector problems and the dire impact these could have on a slowing Chinese economy. Such concerns cannot be brushed aside lightly but what we do not hear so much about are the systemic financial threats looming in the United States and Europe.

The reason is the absurd polarisation of views that has been allowed to develop, or even encouraged, among governments and the public (including large areas of the media) on political, economic and social developments in the East vs the West.

A spotlight is focused on everything “bad” (and thus newsworthy) in, say, China or Russia, while adverse developments elsewhere are treated as though they were happening on the dark side of the moon. Objectivity suffers and that can be dangerous when it comes to financial system problems.

Not everyone is silent about the problems beginning to emerge, for example in the real estate and vast non-banking financial sectors of advanced economies, as higher interest rates on the back of huge debts take their toll. Some senior international officials are voicing concerns.

But these are not publicised to anything like the extent that China’s housing sector woes are. The situation is reminiscent of that before the 2008 global financial crisis, when Western nations grew so used to looking for crises in emerging markets that they failed to see one brewing at home.

When it did erupt, it came from a quarter that had escaped the attention of commentators and regulators – an obscure part of the debt ocean known as the subprime mortgage market. It was an iceberg that sank financial titans.