As bankers warn of crisis risks, is the Chinese economy a cause for concern?

The Lujiazui Financial District in Pudong in Shanghai (Source: Getty)

Clare Howarth is lead Asia Pacific economist at Oxford Economics, says Yes.

Chinese producer prices have been falling for almost three years, as growth slows and industry struggles with excess capacity. Falling oil prices have pushed producer price inflation (PPI) down faster in recent months, but are also partly a consequence of the cooling economy.

GDP per capita is only a third of Japan’s. With plenty of potential still, its current deflation is a hump on the road as living standards increase. But we should be worried about recent trends.

China’s challenge is to deal with zombie producers, high debt levels and bad loans without sparking a financial crisis. These tests mean GDP growth will slip below 7 per cent this year, well under the previous decade’s 10 per cent average.

Nick Beecroft is chairman and senior market analyst at Saxo Capital Markets, says No.

I continue to remain sanguine about the prospects for the Chinese economy, in the sense that, although we may see a slowdown to a 6 to 7 per cent growth rate in 2015, a less feverish rate of expansion may ultimately save us from a hard landing.

PPI may have fallen, and CPI (consumer price inflation) may be subdued, as part of a global phenomenon – but China is uniquely well-placed to ward off the threat of deflation. With $4 trillion in foreign exchange reserves, and ample room to loosen both fiscal and monetary policy and to depreciate the renminbi, I feel the authorities have a perfectly adequate supply of ammunition at their disposal.

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