Economy woes deter investors

PUBLISHED : Wednesday, 31 May, 1995, 12:00am
UPDATED : Wednesday, 31 May, 1995, 12:00am

FUNDAMENTAL imbalances in the mainland's economy are a deterring factor for foreign investment in China, says a specialist.

Standard & Poor's director Paul Coughlin said while the development of the market was promising, with a slowdown in inflation and elimination of the deficit, the conflict of interest between the central and the local governments and growth of money supply were negative factors for foreign investors.

He told a seminar on China's capital markets that risks could emerge as the state banks would get less support from the State under new reforms.

Difficulty in information access would be another undermining factor.

'Investment on faith is dangerous,' he said.

Until all the imbalances were removed, there was not much reason for optimism, he said.

Mark Walsh, a senior partner at law firm Brown & Wood, said sovereign credit would be the determining factor for foreign investors.

What the investor cared about was whether he would receive his agreed payments of interest and his investment returned at maturity.

The problem, of course, was in measuring the risk, Mr Walsh said.

The credit risks, legal risks, information risks and country risks of China, which were viewed to be higher than or less well understood than the risks in other debt securities markets, would be the main concern of investors, he said.

Most important was the back-up of sovereign credit, which made the investors focus on credit rather than other uncertainties.