End-user metals demand growth on the mainland is set to slow further in step with a deceleration in the economy in the years ahead and growth of metals' investment demand from financial market reforms is unlikely to make up for the gap, says a senior banker. Li Tong, chief executive of BOC International, an investment bank with substantial business interests in the metals sector, told Hong Kong Exchanges and Clearing's LME Week metals seminar that slowing fixed-asset investment growth was the main reason for the weak growth in end-user demand. "In the medium term, slower fixed-asset investment growth will reduce commodities demand growth and weigh on prices," she said. Fixed-asset investment grew 17.6 per cent in the first quarter, the lowest in 12 years, as Beijing steers the economy away from investment-led growth with consumption playing a bigger role. BOCI projects the mainland's economic growth to slow from 7.5 per cent last year to 7.3 per cent this year and 7.1 per cent next year. Li expects financial sector reforms, which aim to gradually dismantle restrictions on mainlanders' investment in overseas financial markets and overseas investors' participation in mainland markets, will increase investment demand for metals and other commodities. Citing the International Monetary Fund's projection that net investment outflow from the mainland to overseas markets could amount to 4 to 8 per cent of the nation's gross domestic product if the restrictions are fully lifted, Li said the outflow could amount to US$500 billion to US$600 billion. "While part of this would go into commodities, such demand will probably not be sufficient to plug the gap from slowing end-user demand," she said. Tao Dong, Credit Suisse's chief regional economist in non-Japan Asia, warned the economic slowdown may also come with market shocks that will cause short-term interest rates to soar. He said the biggest risk is from the likely default by local governments on commitments to investors of trust products backed by infrastructure projects. "This year some 3.5 trillion yuan [HK$4.4 trillion] of local-government debt is due … of which 2.3 trillion yuan are trust products," he said. "The problem [of whether they can be refinanced] will come mid-year ... it would not be surprising to see five to 10 defaults a week, rather than the one a month this year." While last year's trust products were mostly backed by property developers whose cash flows were helped by property sales, this year's maturing products are mostly backed by local-government infrastructure projects, many of which are not sound, he said.