The State of the China’s Markets
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The Governor of the PBoC – Z. Xiaochuan – struck a cautionary note at the China Development Forum on Sunday the 20thMarch 2016. According to him, the Debt/GDP ratio has increased dramatically, and is fast approaching untenable levels. Some other concerns that dog the Chinese economy include an insufficient range of financial services and illicit fund-raising activity. The main issue is corporate lending, and this is where the governor sees plenty of room for intervention by the authorities in Beijing. China is in need of additional regulatory measures to protect against excessive lending in forex markets. For example, on 29 February 2016, the PBOC announced a 0.5% reduction in the value of deposits required by banks as reserves. This is being done to inject liquidity into the financial markets.
Ways to Combat High Leverage in China’s Economy:
The Chinese government is attempting to hit a GDP growth rate of 6.5% in 2016 all the way through to 2020. However, some of the most pressing issues include corporate debt. Presently, the level is 150% of GDP, according to the OECD. The sectors of the Chinese economy that are especially vulnerable to high levels of debt include flat glass, steel, coal and cement. The China Development Forum was attended by major industry gurus including Sergio Ermotti of UBS Group, Mark Zuckerberg of Facebook, and Ginni Rometty of Business Machines Corporation, among others. Even the IMFs Christine Lagarde commented that the China transition would be good for the domestic economy and the global economy. The reforms being enacted in China are part and parcel of an overall policy of changing the focus 180°. From an export-oriented market to a consumer-centric market, a slowdown in growth is a prerequisite to an economic turnaround.
