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Changes in the Chinese Economy That Will Alter Your Investment Strategy

105 views  2013-06-26 00:53   Tagscentral  Chinese  economic  Global  housing  market 

We are all aware that the global economyis still relatively stagnant, running below optimal gross domestic product (GDP) levels. Specifically, the Chinese economy is not only experiencing a slowdown in growth, but also a liquidity crunch.

One of my concerns regarding the Chinese economy over the past couple of years has been the rampant increase in credit and loose lending standards. Because the Chinese economy has become such an integral part of the global economy, if imbalances within that nation aren’t addressed, this will lead to further speculative boom-and-bust cycles.

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Last week, the interbank lending rate, which is the interest rate banks charge when they lend to each other, spiked to 13.44%. This compares to an average of 3% over the past 18 months. Since last week, the interbank lending rate has fallen back to 6.48%; still, concerns are mounting over liquidity constraints. (Source: Wassener, B., “Asian Markets Falter After Central Bank Statement,” New York Times, June 24, 2013.)

The global economy has relied too much on excess credit for growth and an increase in debt over the past decade. We have seen what happens with too much credit when the U.S. housing market crashed a few years ago.

Continue Reading: Changes in the Chinese Economy That Will Alter Your Investment Strategy

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