Chinese Slow Down Could Delay Structural Reforms

China’s economic slowdown has pushed policy makers toward stimulus measures, spurring analyst concerns about whether long-sought reforms may fall by the wayside.

“While structural reforms remain at the top of the policy agenda, the recent cyclical slowdown has made advancing them less urgent than was the case six months ago,” Barclays said in a note Tuesday. “There is no clear indication of how fast this area may progress in the short term, except around combating corruption, where the government has highlighted it will do ‘whatever it takes.'”

China has been pursuing reforms to shift its economic model away from labor-intensive and export-oriented manufacturing, which has been dependent on continuous credit growth, and toward one more reliant on private consumption, services and the private sector.

Reforms have targeted a wide range of issues, including corruption, a troubled property sector, non-performing loans at banks, pollution and overcapacity in many industries, as well as efforts to transition its currency, the yuan, toward becoming freely convertible in international markets.

But the resolve to pursue those reforms may falter as economic growth has slowed.

“Overall, the mood is subdued, due to the strong headwinds of a falling property market and elevated local government debt,” Barclays said. It doesn’t expect Beijing will tolerate a growth rate far from the official target of 7 percent for this year. While that still sounds like a fair clip, it’s a far cry from the double-digit growth the country has seen for decades. In 2014, China’s [gross domestic product] grew 7.4 percent, its slowest pace in 24 years.

via CNBC

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Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza