slowing economic growth and a massive corporate debt pile dwarf chinas stock market problems 1723922

There is an increasing chance that slowing economic growth in China could nudge Australia into a recession, according to a report from Deloitte Access Economics.

Recent data from China’s National Bureau of Statistics showed that the Chinese economy grew 7 per cent over the year to June, and in line with government estimates. Though this was welcome evidence that economic conditions were stabilising, doubts have been expressed about the accuracy of the data, according to the ABC. "The stronger-than-expected figure will inevitably spark renewed questions over the veracity of the official data," Julian Evans-Pritchard from Capital Economics in Singapore told Reuters when the data released.

This was echoed by Deloitte director Chris Richardson, who said the actual conditions on the ground in China may be worse than that given out by Chinese official data. "We're now in a phase where perhaps the official numbers are overstating China's strength," he said, as quoted by the ABC. "This is an economy with challenges – it's doing surprisingly well given those challenges, so far, but you shouldn't underestimate just how big those challenges are."

The Deloitte Access Economics Report warns that Chinese economic growth could falter further, and plunge to its lowest over the past 25 years. "It is China's economy which is key," said Chris Richardson, who is a prominent economist. China is Australia’s largest trading partner, and a slowdown there could have a negative impact on the Australian economy.

"The chance of a recession is higher now than it’s been for quite some time,” says Richardson, given the potential for an economic stumble in China. This has serious implications for Australia, given that “much of the Australian federal budget comes with a made-in-China stamp.”

"If China was to stumble, the Australian economy would take a hit and the Australian budget would be hospitalized," he said, as quoted by The Australian.

Meanwhile, another weekend Reuters report warned that China’s corporate debt, which is currently a mammoth US$16.1 trillion and rising, posed a much higher threat to the country’s economy than the volatility in its stock markets. Though the Chinese government intervened successfully in the recent stock market collapse, the Reuters report warns that tackling the corporate debt mountain, currently at 160 per cent of GDP, and projected to climb 77 per cent to US$28.8 trillion over the next five years, was quite another matter.

"Managing the debt market is probably more dangerous than the stock market because the scale of the debt market is bigger, and without any high-profile default, the moral hazard is a significant issue," said David Cui, BofA Merrill Lynch analyst, and quoted by Reuters.