>False and real risks for the Chinese economy (NATIXIS)

We often see completely mistaken analyses concerning China:
− inflationary risk: despite rapid monetary creation, this can be ruled out given the situation of excess production capacity and the savings glut;

− risk of a banking crisis as a result of massive lending in 2009: granted, the levels of non-performing loans have increased, but it would be very easy for the Chinese government to recapitalise the banks (something they are doing for the time being in the markets);

− risk of speculative bubbles as a result of the excessively expansionary monetary policy being conducted, which is due to the exchange-rate regime: the central bank is controlling these bubbles by using instruments other than interest rates: credit caps, statutory reserve ratios;

− risk of a slowdown in growth resulting from monetary policy tightening: this risk is nonexistent, first due to the political will to create jobs, and second because private companies and households receive hardly any of the bank loans granted (which above all are used to finance state-owned companies and local authorities).

The two most serious dangers are in reality:
− the Chinese authorities’ inability to reduce the household savings rate and under-consumption;
− the shortfall in certain natural resources, in particular water.

To read the full report: RISKS