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China's economic slowdown emerges as risk to U.S. economy

HONG KONG — Concerns are growing about China's economy as the country's new leadership tries to get a handle on deep problems that experts say have been years in the making.

There was a record spike Thursday in the rates that banks charge when they lend to one another, evoking memories of the credit shortage that shook the U.S. economy during the financial crisis. A disappointing figure from the manufacturing sector provided another ominous sign this week.

For years, China has been viewed as a place flush with money, erecting gleaming airports, highways and entire cities seemingly overnight. But experts say that much of that building — and impressive economic growth — was fueled by debt that local governments are now struggling to repay, especially as the economy slows down.

"You're dependent on creating new debt every day," said Anne Stevenson-Yang, co-founder of J Capital Research, a Beijing-based analysis firm.

U.S. economists and investors are closely watching events in China, the world's second-largest economy, because of the close ties between the countries. This week, the rate spike and manufacturing slowdown contributed to volatility in U.S. stock markets. Rates in China eased off their record Friday.

China's leaders have acknowledged problems with its financial system, and President Xi Jinping has vowed to reform the country's economy.

"We believe the new leaders are fully aware of the financial risks in the economy," wrote Zhiwei Zhang and Wendy Chen, economists at Nomura, an investment bank.

China's economic slowdown emerges as risk to U.S. economy 06/21/13 [Last modified: Friday, June 21, 2013 10:10pm]
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