In a new Working Paper "China's economic scenarios" the economists at Allianz Group and Dresdner Bank study the impact of various growth patterns on the Chinese economy and the international environment. A hard landing, i.e. growth of well below 6 %, would first and foremost clobber China's banking sector which already carries a substantial proportion of non-performing loans on its books. Even in this event, however, the China experts at Allianz do not expect a systemic banking crisis. The high savings rate among private households and unbroken customer confidence in the state backing for the banking system, as well as the existing foreign exchange and capital transfer controls, mean that the big banks do not face any liquidity problems.
China: Economic scenarios
A slump in the economy would also have a global impact, given China's increased importance in the world economy. The People's Republic is now the world's third largest trading nation and the growth locomotive for Asia. Some two-thirds of Chinese imports come from neighboring countries. As a result, a slump in China would have more far-reaching implications for Asia than for the USA and the EU. One positive side effect, however, would be a likely cooling of prices on international commodity markets.
George Joseph
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