New | Daiwa analyst known as 'Yuan Bear' warns of financial crisis in China
True level of overseas debt raised by mainland entities closer to three times that of the official US$1tr figure, says bearish Daiwa economist
As economic growth slows in mainland China, policymakers are left with only two choices - hard landing or a financial crisis, Kevin Lai, Daiwa Capital Markets' chief economist for Asia ex-Japan, warned yesterday.
Lai said rounds of monetary easing, doubts over the true level of overseas debt held by domestic companies, and a strengthening US dollar on the horizon meant the world's second-largest economy was coping with thornier issues than headline figures suggested. His long-held pessimistic views on China have earned him the nickname "Yuan Bear" and, two years ago, he was among the first to predict the yuan's depreciation.
"The debate in the market now is between a soft landing and a hard landing," Lai said. "But I think the real debate should be either a hard landing or a possible financial crisis."
That contrasts with more positive views in the market. On Monday, ING raised its yuan forecast against the US dollar to 6.40 from 6.55 by the end of the year, citing the recent firming trend of the currency, as well as Premier Li Keqiang's soothing remarks at the World Economic Forum in Dalian last week.
Analysts at Capital Economics also noted on Monday that signs were emerging that economic activity would improve, with more fiscal spending and credit growth on the cards. "While China is still undergoing a structural slowdown as part of its transition toward a more consumption-driven economy, we believe that the short-run downside risks are overstated," they said.