The bubble has burst: On the road to a lost Chinese economic decade

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China is on its way to a Japanese-style lost economic decade due to the bursting of its housing and credit market bubble. Chinese investment accounts for more than 40 percent of the country's overall economy, resulting in manufacturing overcapacity. The Chinese housing market grew to around 20 percent of its overall economy, and Chinese credit increased by 100 percent of GDP since 2008. Housing prices have declined in major Chinese cities, and there are an estimated 65 million to 80 million unoccupied home dwellings. Chinese property developers have defaulted on their loans, causing problems for local governments' finances. China has limited room for added budget stimulus and cannot resort to monetary and exchange rate policy without provoking a backlash from trade partners. The optimal way out of China's economic predicament would be for the country to undertake fundamental economic reforms, but President Xi Jinping is not showing signs of moving in that direction. China is likely to experience a lost economic decade, impacting the world's economic growth.

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