How Far Away Is China From a Minsky Moment?

Chinese stock investors at a securities firm in Fuyang, in China's Anhui province, on Jan. 7, 2015 STR/AFP/Getty Images

Lately, the P2P crash has fostered many predictions about China’s impending Minsky moment.

The “Minsky moment,” named for American economist Hyman Minsky, refers to the moment at which the value of assets collapses suddenly. In China today, the two main indicators identified by Minsky — increased debt and a rising leverage ratio, have manifested quite severely. China has doubtless entered the stages of developing financial crisis and a long deleveraging cycle that Minsky described. In this sense, the economists declaring that China is about to reach its Minsky moment have grounded their arguments in fact.

How China Can Delay Institutional Aspects of the Minsky Moment

Using Western concepts to examine China issues runs the risk of overlooking important institutional factors. Minsky’s made his statements while observing a market economy under the American democratic political system, but China is an incomplete market economy under the political control of a totalitarian autocracy. There are several salient differences between the two economic systems: