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China asks itself a tough question: Can it accept slower growth?

  • China says it wants to cut debt and will slash money supply next year
  • Getting local governments on board with that plan could be a problem
  • Borrowing levels aren't entirely clear, thanks to shadow banking and hidden debts

A Chinese policeman guards in front of a giant portrait of the late chairman Mao Zedong on the Tiananmen Gate at Tiananmen Square in Beijing, China.Getty Images

China says it's on a mission to curb high levels of borrowing in its economy — and it even aims to cut money supply next year. But people who watch the country closely aren't sure that will happen.

Experts question whether the world's second-biggest economy can kick its addiction to debt-fueled growth. While Beijing may want to slow the country's growth, the risk is that a sharp deceleration may derail the entire economy.

"I think it's very clear, and I think the leadership knows this. They have this very difficult problem of balancing financial risk — which is too much credit growth — against economic growth," said Fraser Howie, independent analyst.

"It's a problem of their own making. For too long, they allowed credit to expand. For too long, they focused on GDP growth rate," Howie told CNBC recently.

Local government debt

Although the political commitment to cut debt appears strong at the top, there may be problems further down the pecking order. Performance by local and provincial government officials is often judged based on growth — which is boosted by debt, Howie said.

There are concerns about local debt levels among central government leaders, with Beijing officials detailing concerns about "hidden debt" to China's Caixin magazine, as reported this week.


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