The credit squeeze in China is beginning to feel like the summer before the financial crisis in the US, a former chief economic adviser to US President Barack Obama says.
Austan Goolsbee, a professor at the University of Chicago's Booth School of Business, told an Australian mining conference that a potential credit bubble in China over the next six to 12 months would be a "pretty serious issue", particularly for resources dependent economies like Australia.
"If you see what's happening with credit and credit spreads in China and the way they're getting on this rollercoaster ride, where the market starts getting nervous, interest rates start rising significantly, causing the government to come in and say either `we're maxed up' or `we're going to try to make credit loose'," Mr Goolsbee told the Diggers and Dealers conference.
"That has a feel not unlike the summer of 2007 before the big financial crisis in the US."
Market participants in the world's second largest economy were nervous that tighter monetary policy might expose losses in the banking sector, just as they were in the US six years ago, he said.
"There are the same concerns about the financial sector in China ... the implicit bank losses might be real high and nobody knows who's got those losses," Mr Goolsbee said.
He also said Australia's economy was being affected as growth in China slowed and commodity prices weakened.
But over the medium to long run, China still has a lot of room to make the transition to a domestic focused economy, Mr Goolsbee said.
