China’s impending Minsky moment

Two years ago, Zhou Xiaochuan, then China’s central bank governor, told a press conference at the 19th Communist party Congress in Beijing that too many procyclical factors in the economy and excessive optimism risked generating “accumulating contradictions that could lead to the so-called Minsky moment”.

There is still a danger of a “Minsky moment” hitting China’s economy. US academic economist Hyman Minsky, who died in 1996, warned of the risks of periods of financial excesses leading to crises. Today, China’s debt-to-gross domestic product ratio is more than 300 per cent and continues on a dangerously upward trajectory.

The Chinese authorities are aware of the situation and the risks but they continually refrain from acting with the necessary force. They are concerned that actions to confront rising domestic debt will constrain economic growth. They are wrong in believing there will ever be a good time to curb financial excesses, as they fail to comprehend that delay now will make action in the future harder and costlier.