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Is China heading for a homemade banking crisis?

Warnings about rising debt have not gone down well with China's leaders. But without some drastic action a similar crash to the west's 2008 will become increasingly likely

By George Magnus  

China President Xi Jinping. Photo: Ma Zhancheng/Xinhua News Agency/PA Images

Last week, Moody’s Investor Services, one of the three main credit rating agencies, downgraded China’s sovereign credit one notch from Aa3 to A1. This affects the terms on which the government and its sub-national institutions can borrow money.

My own reaction to this news was “who cares?” China has precious little foreign debt, and what it does is denominated in its own currency.

Judging by Beijing’s reaction, though, I couldn’t have been more wrong. You’d have thought Moody’s had insulted…

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