Monetary easing policies, including rate cuts that boost liquidity in the market, are likely to hurt the Chinese economy as money could flow into the wrong sectors, according to a senior private investment professional.
Authorities should be careful in mapping out any further measures to spur the economy by adding more liquidity, said Ha Jiming, vice chairman and chief strategist at Goldman Sachs Asset Management’s China investment management division.
Excess liquidity could flow into the property and stock markets and trigger speculative activities that may hurt the real economy in the end, the Hong Kong Economic Journal quoted Ha as saying.
Ha noted that the government is raising its debt levels to ensure high growth.
China’s debt to gross domestic product ratio could rise to 350 percent by 2027 from the current 230 percent if the economy is kept at a high growth pace.
The country should lower its annual economic growth target to an average of 5-6 percent for 2014-2022, Ha said.
“China should reduce the contribution of investment to gross domestic product to 40 percent by 2022 for a healthier economic structure,” he said.
Investment as a percentage of GDP now stands at 47.8 percent, Ha added, noting that Japan’s economy has experienced decades of contraction after the ratio peaked out at 40 percent.
The recent asymmetric cut in benchmark interest rates and the removal of the moving band for savings interest rates to 1.2 times above the benchmark has signaled authorities’ goal for faster liberalization in the country’s interest rate regime.
The move effectively narrowed lenders’ net interest margin to 2.3 percent from 3 percent.
However, the pace of the rate cut cycle this time may be slower than before as the country is cracking down on illegitimate financing platforms.
Authorities might in turn speed up the development of the bond market and the launch of regulated municipal bonds, Ha said.
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