Will China's 'extend and pretend' monetary policies cause its next financial crisis?

China's recent stimulus might be boosting sentiment, but the rise in overall debt is creating serious problems and is likely to lead to a financial crisis in the coming years, argues Justin Onuekwusi, multi-asset fund manager at Legal & General Investment Management

To paraphrase a Federal Reserve official recently, boosting growth through leverage is like wetting the bed: 'it feels good at first, but pretty soon it becomes a real mess'. This is how we look at China. Chinese activity has firmed on the back of an abundance of fiscal and monetary stimulus and the easing of property rules. Nominal output jumped 7.1% year-on-year in Q1 2016, up from 6% in the previous quarter - and high frequency indicators suggest second quarter growth may rise even further. What does China's latest Five Year Plan focus on? But the current cyclical upswing com...