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WORLD
Current financial developments in China
SLOWER ECONOMIC
GROWTH
Sasha Grujevski „When the winds of change blow, on GDP are around 7%, but there are an-
some people build walls, while others nouncements for slower growth in the
The author is a former build windmills“ -were the words of the following period.
banker and an active Chinese Prime Minister Li Keqiang at the
participant in the world’s World Economic Forum in Davos in Jan- The first signs of weakness emerged
financial markets uary this year. in April this year, when Prime Minis-
ter Li visited the provinces of Jilin, Hei-
The modernization of the financial longjiang and Liaoning which showed
system is expected to lead to the aban- substandard growth of 5.8%, 4.8% and
donment of debt-based economic de- 1.9%, respectively. Local officials hoped
velopment (government-local, private), for further subsidies and transfers
stimulated by infrastructure develop- from the central government, but the
ment, deliberately sized to excessive response from the highest levels was
construction of industrial facilities and more directed towards stimulating the
indebtedness with enormous inflated economy with increased public spending
credit bubble, of an epic size. Further and easing of monetary policy by lower-
development was expected (or is still ex- ing the interest rates. The need for fund-
pected) to be moderate and based on in- ing the local growth was satisfied by fi-
creased internal consumption, services nancial modeling (swap transactions of
and innovation. the off-balance sheet debt and issuance
of low-interest municipal bonds) in the
The Chinese Prime Minister further re- amount of two trillion yuan, an amount
assured that the transformation into the which may be increased. In this way, eco-
new economic system will go smoothly nomic growth has become a priority, as
without shocks, or as Li stressed „re- opposed to the declared policy of reduc-
gional or systemic crises will not happen ing the debt, the so-called deleveraging.
in China“.
In this way the Chinese government
Seven months later, China is at the tried to put a solid ground under the
epicenter of the global earthquake in downward trend of the economy. Inter-
the capital market from which US Dol- est rates fell to their lowest historic lev-
lars 8 trillion evaporated. Official figures
September 2015 75
