China Economic Transformation Painful and Treacherous

China’s Economic Changeover – `Painful & Treacherous’

China’s changeover from an economy which is greatly dependent on manufacturing is a painful and treacherous one. China’s economic reformation has entered its most critical phase and authorities should deepen improvements in significant areas, eliminate barriers and restore the framework. Various challenges and tough times will be faced ahead.

This would create rare investment opportunities together with volatility and fluctuations and investors need to be positive and alert, looking for options to profit from the changes. China’s Premier Li Keqiang answered queries during a meeting on September 2, 2015, with foreign company executives at the World Economic Forum – WEF, in China’s port city Dalian and stated that China should embrace its global obligations with regards to combating climate change and that the country was already under huge pressure to meet emission reduction goals.

He admitted that the country is on track in achieving its target this year. He had informed the audience at the event that it was difficult to achieve 7% growth domestic product – GDP growth as China has targeted in 2015. However the nation’s new growth drivers as it tends to move from factories to a broader, service based economy would speedily tend to take shape.

Leaders Not Influenced by Short-Term Fluctuations

Li added that the Chinese economy has a bright future to what is known as the Summer Davos saying that `this is not unrealistic optimism’. Li further commented that China would be continuing in reforming its markets which included adopting an open and transparent capital market and relax restrictions on capital flow in the country.

He adds that over 10,000 new businesses are being registered in China each day and `sharing economy’ have been making new ways in creating growth.As the changeover takes place, leaders of China would not be influenced by short-term fluctuation in the economy, according to Li, who describes the company as shock-resistant and resilient.

His message reverberated to a statement which had been made by Finance Minister, Lou Jiwei earlier at the G-20 meeting in Ankara, Turkey wherein he had informed that China was not focused on monthly data. The position is at add with some of the economists who believe that what data is available from China, indicate that the world’s second largest economy is probably heading for a recession.

Risk of Falling into Deflation

Recession is usually demarcated as two successive quarters of a contraction in GDP. The influential Citigroup chief economists and a former member of the Bank of England’s interest rate-setting committee, Willem Buiter, have cautioned in a note that `there is a high and rising likelihood of a Chinese, EM – emerging market and global recession scenario playing out’.

Later on he also informed CNBC that the official data which had been provided by China was `largely meaningless’ and as per Citi’s own model, the economy of China had increased by 4 percent in 2014 and not at 7.3 percent since the number was studied down, by China earlier in the week.

The data that was released recently indicated that consumer inflation had accelerated in August when producers’ prices had fallen deeper into deflation. The CPI – China’s consumer price index increased to 2% in August from the previous year against expectations for a 1.8% increase from Reuter’s poll, following July’s gain of 1.6%. Chief China economist, Li-Gang Liu, at ANX stated that `as PPI remains negative for over three years, China is still facing the risk of falling into deflation’.