Deflation leaves China on the brink of financial crisis

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Beijing, China
China could be on the brink of financial crisis
Beijing, China
China could be on the brink of financial crisis

Despite picking up slightly in December, China’s rate of inflation remained well below official targets, signaling trouble for the world’s second largest economy.

Economists have said that it is ‘highly probable’ that a credit crunch will occur in China in 2015.

The fact that China is also likely to slip into deflation increases the likelihood that officials at the People’s Bank of China will cut interest rates further in response.

In November 2014 the Bank was forced to cut interest rates for the first time in 24 months to try and help boost the economy.

According to Bank of America Merrill Lynch (BoAML), the policy of slower economic growth by Chinese President Xi could be “lethal”, having a deeply negative effect on the financial system in the country. Financial analysts at BoAML have warned that a double default is likely and advised investors to consider the risks on renminbi devaluation and deflation.

BoAML’s analysis comes from its report entitle Deflation, Devaluation and Default, where it also predicts the Hang Seng to decline by as much as 10 per cent in 2015.

The report added that China’s exports are also under pressure. Beijing is expected to come up with a series of measures to try and boost the economy.

If economic slowdown is to continue, China would be plunged further into financial crisis which would lead to companies defaulting on their debts and a wave of job losses.

On January 20, China is expected to publish its growth figures for 2014, which look set to miss the governments financial and economic targets for the first time in seventeen years.

1 COMMENT

  1. China is all smoke and mirrors with no transparency in it finances including its shadow banking system. It’s on the verge of collapse while so many lemmings think it’s The Next Big Deal.

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