Legal & General Investment Management has reported that while China’s growth will continue, the country will face increasing challenges as it transitions to a slower growth environment.
LGIM global emerging market strategist, Brian Coulton, said: "As a proportion of GDP in the past 12 months it has increased significantly, rising concerns over the risk of a ‘hard landing’ in the economy.
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"China’s current account surplus and domestic savings, makes the country less vulnerable to foreign funding, thereby rising debt levels that could result in higher interest rates."
According to LGIM, China needs to focus on three "Rs" – reform, rebalancing and restraint.
Coulton further added, "Hitherto the banking system remains liquid. The non-performing loan ratio is also low. But, easier access to credit is leading to poorer capital allocation decisions, and lower productivity growths as less efficient state owned enterprises are able to gain support.
"The authorities recognise that maintaining demand without leverage expanding is the key to sustainability of future growth."
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