Chinese economy still faces significant risks

Chinese economyChinese economy still faces significant risks, among which is the sharp intersection of the credit boom and overly aggressive reaction to the government if inflation should accelerate. The economists warn that efforts to curb cheap loans will weigh on key sectors such as housing. The authorities are trying to put a ceiling on prices without harm the economy as a whole, where growth remains highly dependent on government spending.

The scale of the credit boom became clear in the middle of the month when new data showed that the amount of loans in China has surpassed the size of the production of Sweden and Poland, fueling new concerns.

Aggregate financing, a broad measure of allocated new loans, reached a record 3.74 trillion CNY (545 billion USD). However, the total amount of loans continues to decline moderately.

The politicians began to tighten market rates, and analysts expect the measures to reduce lending to continue without “suffocate” the economy as a whole.

But economic threats are not only inside China. External risks include a sharp drop in exports as a result of slowing demand or raise trade barriers. As the greatest risk we see coping with rising credit imbalances, wrong policy and the sharp external shock such as a sharp tightening of credit conditions and hard landing for growth.

According to experts, the slowdown of the Chinese economy will have adverse consequences for the whole of Asia, especially in small open economies that rely heavily on trade. The combination of slowing Chinese economic growth and financial market volatility will also bring a problem worldwide, pushing the dollar up and override on stock prices. The open Asian economies, especially those relying on the export economy and / or high debt remain the most vulnerable to a hard landing in China.

Nevertheless, you should know that China has a buffer to compensate for any shock, including a large current account surplus, stable international investment position, low debt and still significant reserves, economists noted.