Recent decade has seen an unprecedented rise of the Chinese economy as its economic growth rate was way higher than many of the developed and developing economies in the world. The high rate of economic growth has seen this dragon economy grown to become the world’s second largest economy. The country has experienced huge surplus in capital reserve on back of its gigantic cheap export to the global market. Even in the time of global economic slowdown, the country was able to maintain its high growth. However, the situation of boom is now facing pressure and there are enough signs from China which is pointing towards hard landing of this economy. Here are some points which show the difficulty that might be awaiting for this giant economy.

·         Decline in electricity consumption:

The electricity consumption is one of the major indicators which show the country’s economic pace. However, electricity consumption in the month of January, 2012 has declined by 7.5 percent in China. At the same time the level of power consumption in the month of January, 2012 is also at the lowest levels since 2002 which means there has been decline in the economic activities in China.

·         High Inflation:

The high level of inflation in China has been the major obstacle for the Chinese economy in the recent years. Moreover, the recent monthly inflation report released also showed that inflation rose higher than the previous month and remains at 4.5%. The peg exchange rate of Yuan with US dollar is also regarded as the prime reason for this rise in inflation. This means that if the US came up with more easing, then this could potentially import high and uncontrollable level of inflation in China. In this scenario, if China doesn’t came up with appropriate monetary stimulus then it may well hamper the Chinese economy.

·         Real estate activity accumulating larger portion of GDP:

The housing related activity’s influence in the Chinese GDP has increased to reach over 40%. This high level of dependency on construction and real estate at the time of housing bubble can have a dangerous effect in the economy if there is any major burst in the housing sector.

·         Overleveraged of the public sector:

China debt to GDP is extremely low at 18.9%. However, as per Moody’s, China has $1.7 trillion of debt owned by its local government. When we add debt and future contingent liabilities then it becomes 100% of the GDP, similar to the level of the US. On top of this, Chinese banks have been extending the loan maturity in order to avoid default. These kinds of measures adopted by the Chinese banking sector can potentially drag its banking sector towards bankruptcy.