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China is biggest threat to global economy right now, says
Harvard professor
The biggest threat to the global economy is not Brexit, but
an impending crash in China, according to one of the world’s most eminent
economists.
Speaking to the BBC, Harvard professor, Ken Rogoff warned that China was facing
a “pretty sharp landing already” after years of rapid economic growth. The real
picture is much worse than the official one, Rogoff said. “I worry about China
becoming more of a problem,” he said.
The economist rubbished claims that China is a special case and would therefore
be able to defy the gloomy projections. “Everyone says China's different, the
state owns everything they can control it. Only to a point. It's definitely a
worry, a hard landing in China,” Rogoff said.
Chinese growth has been taken for granted, he said, with the world pinning its
hopes on the country to prop up a moribund global economy, that has witnessed
anemic growth in recent years, most notably in Europe and Japan.
“We've taken it for granted that whatever Europe's doing, Japan's doing - at
least China's moving along and there isn't really a substitute for China.
“I think India may come along some day but it's fallen so far behind in size
it's not going to compensate.”
“The IMF has marked down its forecasts of global growth nine years in a row and
certainly the rumour is they're about to do it again,” he said.
He added that China is going through a “big political revolution”. Beijing has
campaigned to tackle corruption and also to move from a focus on manufacturing
goods cheaply to a more typically middle-income economy, driven to a greater
extent by consumer spending.
Rogoff pointed to other dangers in the world including whether Donald Trump or
Hillary Clinton would be the next US president.
Should Trump be victorious in November, his actions cannot be predicted by
commentators, Rogoff said, while a victorious Clinton may find her plans for
infrastructure spending are blocked by Republicans in the House of
Representatives.
Rogoff said he was nervous about the uncertainty around the election, and
particularly the prospect of a Trump vicotry, adding that watching the election
had been “painful” for economists because of the protectionist policies of both
candidates.
Several international bodies have expressed concern about a Chinese slowdown in
recent weeks. IMF expects China's GDP (gross domestic product) to grow by 6.6
percent this year.
The Bank for International Settlements - a global organisation of central banks
- released data last week showing the risk of a catastrophic Chinese banking
crisis is, by one measure, at its highest ever level.
The BIS said that China's credit-to-GDP gap now stands at 30.1%, a figure the
Bank of England described as “very high”. In fact it is the highest for any
country since data was collected in 1995, suggesting an unsustainable credit
bubble.
Any crash could have ripple effects the world over. British banks have $530bn
wirth of lending and investment in China, or 16 per cent of all foreign assets
they own.