Chinese Bubble about to burst

China has dominated the Asia's economy for more than 3 decades and it was only possible due to their economic reforms towards the mass production and favorable conditions towards exports. Now in today's world China is expending their geopolitical powers by initiating an ambitious project of Maritime Silk road project (aka One Belt One Road - OBOR). Under OBOR, China is extending debt (loans) to Asian and European nations for infrastructure development project.

These Infrastructure projects are the win win for both the parties, as billions of dollars pumped in to an economic weaker nations and China gains influence over these nations by creating debt traps. India has objected and boycotted the OBOR, as India is cautious enough towards these debt trap, as Sri Lanka has fallen into.

Now if the Projects under OBOR are completed and successful, then China would get enormous global advantages. China would have much stronger say in UN and could control many of the International sea trade routes. But the success of the OBOR is not that easy, as it demands a lot more what it looks like. Billions of $ need to be plunged in from China's deep pockets, which make China vulnerable in Economic front. OBOR also demands constant faith and strong diplomatic ties between the recipient nations and China, because if the diplomatic relations get effected, the projects may put on halt. 

To maintain the cash flow and keep up the diplomatic ties with all recipient nations, China would be taking many steps such as taking hefty loans from their Nationalized Banks, cutting down the surplus, maintaining or fabricating high GDP growth rate, taking a back door entry into internal offices of recipient nations and mush more. But the treacherous step, from among all the step, is promoting the shadow banking sector.

Now you would be wondering that what is Shadow Banking? It is an Institution (Non banking) which clubs up the loans into a financial instruments and sell it to investors. Is it good or bad? Theoretically it is an excellent product which reduces the risk of finance institutes and easy loans are available to its recipients. Than why it is a treacherous step? Because the things are not that simple how it looks. As the risk belong to investors, the financial institute get very liberal about distributing the loans.  In simple words "it is a distribution of investor's money to several parties without concentrating on how will they return.

China is constantly promoting Shadow banking, in-spite of knowing the fact that similar instrument has detonated the 2008 recession. China is backing these shadow banks, in case of any system failure but this is also true that this huge loan amount can't reimbursed by any nation that is why it is a treacherous step.