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Tuesday 25.10.2016 | Name days: Beāte, Beatrise

Expert: China’s economy can no longer rely solely on investments

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Baltic news, News from Latvia, BNN.LV, BNN-NEWS.COM, BNN-NEWS.RUChina’s economy should stop using its current growth model and move toward a more western-oriented system. This country’s development road based on larger consumption takes too much time, and is unbalanced, believes Danish investment company Saxo Bank Resource Strategy Manager Ole Hansen.

Revenue and investments in China are not balanced at the moment – investments are too big, and this only serves to increase debts in the private and state sector, says the representative of Saxo Bank.

The People’s Bank of China has reduced reserve requirements for commercial banks and the base interest rate by 25 base points. Considering the concerns about inflation on the stock market, Saxo Bank experts see this step as an odd one. The consequences of this step have become rather dramatic. Millions of investors in China are trying to reduce losses by realizing stocks. Panic and failures have caused the index to drop by 33%.

More than 80 million Chinese investors have felt the consequences of the aforementioned changes. The impact of the Greek crisis is also felt there. Greece is Europe’s problem, but it serves as an example for other countries to avoid similar situations. China’s risks are much deeper; they create risks for Australia and other countries that rely on exports of Chinese raw materials. Financial stability risks in China will be felt much more strongly as they will be felt in the decline of prices of different goods. The price of iron ore is in the most sensitive position in regard to China’s economic activity: it declined by 10% this Friday, 10 July. The prices of raw materials have dropped 25% over the course of last week.

Regardless of regional stock markets, China’s market of goods will suffer greatly. Oil suffered the largest decline in the past five months.


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