Strategist: Lack of reforms halting China growth

(Reuters/Scanpix)
8/4/2015 9:59 AM
Category: International

Economic news from China has not been great lately, growth is cooling and pessimism creeping in on stock markets. SEB private banking strategist Peeter Koppel said faltering reforms are to blame.

Koppel told ERR radio that the economic growth in China is likely to slow down to 6 percent. It was around 7.4 last year, and between 10 and 8 percent in previous years.

He said stock markets are not a hugely important source of finance for Chinese companies and only around 7 percent of the population dabble with stocks and shares.

“If we look at the financial system, those who have lent to small investors to purchase shares, then those companies are not weak enough to create a domino effect,” he said.

“China pushed through economic reforms in the past 30 years and it had plans for further reforms. Thanks to those reforms, peoples' livelyhood improved, the political elite felt secure, and the legitimacy of the powers grew.”

“But if we look at the current leadership, it seems they have decreased the importance of reforms. They have global political ambitions,” Koppel said, adding that focus on political ambitions, symbolic and geopolitical influence have demoted reforms. He said this has led to the economy cooling.

Koppel said the region as a whole still has the structure for growth, with a young population, the need to catch up with the West and room for improvement in efficiency. “Some of those [East Asia] markets have suffered but not even close to as much as local Chinese markets,” he said, adding that local Chinese markets are fairly closed to foreign investors.

J.M. Laats

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