5
28/06/2016 Expert Commentary
28/06/2016
Expert Commentary
Tuesday, June 28, 2016
Dukascopy Bank SA, Route de Pre-Bois 20, International Center Cointrin, Entrance H, 1215 Geneva 15, Switzerland tel: +41 (0) 22 799 4888, fax: +41 (0) 22 799 4880 [email protected]
All the fundamental changes drive up the consumption share in GDP, so the rebalancing is still happening.
Recently, the IMF in its so called Article 4 report has issued a warning on the rising China’s debt burden. How do you asses
the current Chinese debt level? Do you think the IMF overstates the risk?
It is difficult to measure; however, overall, the debt to GDP ratio in China is now above 200%. One can base their measurement
using different statistic data, but, in general, it is above 200%, and a lot of it lies on the corporate sector. This situation creates
certain problems, causing the higher financial cost for the corporate sector, which will put stress on the economic growth, par-
ticularly on profitability of the corporate sector. Thus, it will require figuring out how to deal with the corporate debt. One pos-
sible scenario is that the government might show more leverage. In this way, the part of the corporate debt might shift to the
government, as we know that more than 30% of the corporate debt belongs to state owned enterprises. Essentially, a great
share of such debt belongs to the local government’s financial vehicles, which should be viewed as a part of the local govern-
ment; therefore, I think that a significant part of the debt will be shifted to the government sector. Moreover, I do not agree
with the statement that China is entering a financial crisis, because if you look at the government sector, the debt to GDP ratio
is still very low; thus, the government can show much more responsibility in dealing with that.
How do you assess China’s progress in rebalancing its economy from heavy industry towards consumption and services?
To my mind, that is happening in two different ways. The first is based on fundamental factors such as the demographic
change, urbanisation, and reforms related to urbanisation. All the fundamental changes drive up the consumption share in
GDP, so the rebalancing is still happening.
On the other hand, the investment growth slowed down further; it is rather driven by weakening investment demand. China
needs to keep the balance between maintaining its growth and its restructuring. As a result of the restructuring, growth will
slow down, as investment is slowing down. It seems that consumption cannot replace investment as the growth engine. Con-
sumption is a function of income or GDP growth: if investment growth slows down so will the GDP growth as well as consump-
tion, but at a slower pace, certainly.
Yang Zhao Chief China Economist Nomura International
Hong Kong
Yang Zhao, Chief China Economist at Nomura International, on Chinese economy
Tuesday, June 28, 2016
Dukascopy Bank SA, Route de Pre-Bois 20, International Center Cointrin, Entrance H, 1215 Geneva 15, Switzerland tel: +41 (0) 22 799 4888, fax: +41 (0) 22 799 4880 [email protected]
Thus, the government definitely needs to keep the balance between growth and restructuring.
That is why, as a share of the total income or GDP, consumption is picking up. Nevertheless, that does not necessarily mean
that consumption can take place of investment as the growth engine. Usually, during the restructuring we see pretty significant
slowdown of economic growth, which challenges the government policy. Thus, the government definitely needs to keep the
balance between growth and restructuring. To my mind, that requires the government to stimulate the economy from time to
time, but it is quite a delicate issue, as the government definitely needs to avoid over-stimulus by worsening the economic
structure with overcapacity or ineffective investment.
Yang Zhao Chief China Economist Nomura International
Hong Kong
Yang Zhao, Chief China Economist at Nomura International, on Chinese economy
Dukascopy Bank SA, Route de Pre-Bois 20, International Center Cointrin, Entrance H, 1215 Geneva 15, Switzerland tel: +41 (0) 22 799 4888, fax: +41 (0) 22 799 4880 re-
Just click on a subject you are interested
in and see what experts have to say
Dukascopy Bank SA, Route de Pre-Bois 20, International Center Cointrin, Entrance H, 1215 Geneva 15, Switzerland tel: +41 (0) 22 799 4888, fax: +41 (0) 22 799 4880 [email protected]
Disclaimer Everything in this article, including opinions and figures, is provided for informational purposes only and may not be interpreted as financial advice or solicitation of products. Dukascopy group assume no responsibility for the completeness or the accuracy of any data contained in this article. Financial figures indicated in this article have not been verified by the Dukascopy group. Views, opinions and analyses are those of the author of the article, and are not endorsed by the Dukascopy group. Dukascopy group waive any and all warranties, express or implied, regarding, but without limitation to, warranties of the merchantability or the fitness for a particular purpose, with respect to all information in this article. Dukascopy group shall under no circumstances be responsible for any direct, indirect, consequential, contingent or any other damages sustained in connection with the use of this article.
Newest releases and archive: Fundamental Analysis Technical Analysis Press Review Market Research Expert Commentary Dukascopy Sentiment Index Trade Pattern Ideas Global Stock Market Review Commodity Overview Economic Research Quarterly Report Aggregate Technical Indicator Additional information: Dukascopy Group Home Page Market News & Research FXSpider Live Webinars Dukascopy TV Daily Pivot Point Levels Economic Calendar Daily Highs/Lows SWFX Sentiment Index Movers & Shakers FX Forex Calculators Currency Converter Currency Index CoT Charts Social networks:
Fundamental Analysis Technical Analysis Press Review Market Research
Expert Commentary Dukascopy Bank Sentiment Index
Trade Pattern Ideas Global Stock Market Review
Commodity Overview Economic Research Dukascopy Aggregate Technical Indicator
