by Marie Kauna – EMTV Online, Port Moresby
Chinese economic growth is officially forecasted to hit a 25-year low of just seven percent this year, which although still seemingly strong is of a concern for those in Beijing. This comes on the back of China’s decision last week to devalue the yuan to help support its struggling exporters.
According to Chief Economist for greater China, Liu Li-Gang, “China appears to be more or less slowly entering a debt-deflation,” he said.
Liu also added that Beijing will need to sell its state assets more aggressively to escape a debt spiral.
Beijing has financed a two trillion yuan package to refinance its local government’s debts, along with another one trillion for state policy banks to fund projects such as pipelines, water treatments or subway systems.
While local government and state policy banks gear up to back up, China’s smaller and more productive firms continue to struggle to secure their finances. These struggles are instigated by the restrictions that lock these firms out of the main Chinese stock market.
However, these small firms are now resorting to non-bank finances for assistance. According to managing partner at Adamas Asset Manaagement, Bary Lau, “We have been inundated with requests”.
The forecast now fuels more concerns that China’s could potentially end up like Japan, who continue to have a high debt and deflation problem.