According to the periodical Qiushi, China’s economy faces three major risks. Therefore, it is important for China to “guard against deflation, the flight of venture capital, and debt default. It must prevent them from resonating together which would amplify their negative impact on the economy.”
Regarding the risk of deflation, there is pressure on the Consumer Price Index and the Producer Price Index to decline. The growth of the money supply is slowing down. Economic growth is also lower due to a lack of demand, with GDP growth at 7.4 percent in the first quarter of this year.
The risk of capital flight is increasing as evident from RMB depreciation. The trade deficit and the funds outstanding for foreign exchange are growing. If economic growth continues to slow down, capital flight will accelerate, thus putting more pressure on the RMB to depreciate, which in turn will adversely impact the real estate market, the foreign exchange market, and the financial market.
Debt default may continue in the construction, real estate, and mining industries. As more caution is exercised in providing loans and credit, market interest rates will move up, leading to a further contraction of the economy.
Source: Qiushi, April 23, 2014