For the last two decades, China has outgrown many economies to become second largest economy in the world and achieved this landmark by making its economy an investment driven economy. And for that, it had borrowed huge amount of money from domestic as well as foreign sources. At present Chinese firms have foreign debts to the tune of more than $1 trillion which increasing their default and bankruptcy probabilities in case significant slowdown (that is evident now). Unlike other large developed and developing economies with high GDP growth, the economic prosperity in China has not reached the bottom of pyramid.
The high GDP growth rate in China was export led through leveraged investment rather than consumption. Once the global demand for export from China cooled down because of simultaneous events like global economic slowdown since 2008, problems in Europe, rising costs in China, strong Renminbi Yuan and cheaper alternatives like Bharat, Philippines and Brazil, the GDP growth rate started falling down resulting in lower returns on investments but hardly an concession on exposure. So risk increased but earnings fell simultaneously. This made China less lucrative. So the foreign investors started looking for alternatives to sell off Chinese assets.
