China's economy, the world's second-largest after the US, is in danger of a catastrophic collapse that could reverberate through global stock markets and have far-reaching consequences,

warns an expert. Recent months have seen a rapid decline in China's economic indicators, raising fears of a devastating domino effect on financial markets.

In August, official data revealed a fourth consecutive monthly decline in exports, down by 8.8% compared to the previous year. Imports have also seen a significant decrease, falling from 21.8% in 2017/18 to just 14.8% this year.

JPMorgan data from earlier this month indicated that investors had offloaded a staggering $12 billion worth of major stocks, highlighting the impending threat of a "serious and long-term" economic crash.

Russ Mould, the investment director at AJ Bell, has raised concerns about the potential consequences, including a "wave of passive selling" in stock markets. He explained that while China has taken measures such as cutting interest rates and reducing capital requirements for banks to stimulate economic growth, the mounting debt levels could hinder sustained growth.

Some economists argue that China is on the verge of experiencing its own version of the "Minsky Moment," a concept outlined by economist Hyman Minsky in 1993, which describes the third stage of the debt cycle known as "The Financial Instability Hypothesis."

Pressure is mounting on Chinese President Xi Jinping and the Communist Party to stabilize the deteriorating situation. However, despite acknowledging that China's current economic model is unsustainable, drastic economic collapse remains an unlikely scenario. Nevertheless, Mould suggests that China might need to devalue its currency to avoid a severe recession, a move that could challenge the legitimacy of the Communist Party, as public prosperity is a fundamental pillar of its rule.

The situation in China's economy has significant implications for global financial markets, and observers worldwide are closely monitoring developments as the country seeks to navigate these turbulent economic waters. Photo by N509FZ, Wikimedia commons.