One of the most widely talked issue right now is China's weak economic datas. Many analysts have expected China's economy to enter its boiling point and, for one reason another, to experience downtrend in 2014. Barclay's criticized China's debt management and warned them of the danger of systemic financial risk in short and mid-term. Even George Soros called China as the biggest uncertainty in the world right now, because its growth model have lost its steam.

One of the most widely talked issue right now is China's weak economic datas. Many analysts have expected China's economy to enter its boiling point and, for one reason and another, to experience slowing growth in 2014. Barclay's criticized China's debt management and warned them of the danger of systemic financial risk in short and mid-term. Even George Soros called China as the biggest uncertainty in the world right now, because its growth model have lost its steam.
China'sThe Threat Of Credit Crunch
Bloomberg yesterday (15/1) reported that at least seven provinces in China set lower growth target this year than in 2013. It suggests that China's economic expansion are to slow, along the government's attempt to reform its economy. President Xi Jinping was reported push local authorities to focus more on environmental protection that short-term economic growth.

Economic growth in the second-biggest economy has long been criticized as strong in quantity only, not quality. Some problems that emerged was the high local government debts, environmental damages, and poor worker's welfare. Those problems piled up and resulted in slowing growth and the threat of financial crisis.

IMF (15/1) estimated that local government debt climbed to 45% of total GDP in 2012 which was 51.9 trillion Yuan. The number has not included government-owned enterprises debt, public financial sector debt, and other fiscal debt sources. This is what is at the base of concern toward mass default that could cripple China's financial system.

People's
In an effort to contain the threat, the government strengthened a string of rules on loans. They tighten regulation on risky loans, toughen guides on lending from banks, and set higher interest rates for debt-based financial assets like bonds. However, nothing on those could possibly put an end in the brewing trouble. Local government's tricks to boost growth with loans, now turned into threat to the same growth. The latest news said that China at last allowed 'rollover'. However, rollover is like 'digging a hole by burying another hole'. This one too, doesn't seem going to end the threat of credit crunch (again).

Exporting Negative Sentiment
Renminbi is one of few fixed-rate currencies in the world. It is not commonly traded in the forex market. That's why most traders disregard news on China's economy. Nevertheless, the reality is this: China is one of the world's economic giant and has the ability to export negative sentiment to its trading partners. Case in point, Australia. China's meagre data releases has definite impact on AUD. The market could have ignored minor reports, but it is clear that if China stumbles, then Australia will not be far behind.

Australia's neighbor, New Zealand, will suffer from the impact as well. During the last three years, China have became New Zealand's main export destination. Some of the most important items are meat, lumber, and dairy products. It should be noted that New Zealand's economy relies on its agricultural exports that includes the three commodities. Turmoil in China economy will cut down New Zealand's exports for sure. Luckily, for some time now market players have been regarding them as having better economic prospect than Australia.
eu-china
In a mutual basis, trading volume between European Union and China have been getting higher from year to year. China even helped them during the debt crisis by buying billions worthless Eurozone bonds. If anything bad happens to China, the impact will hinder EU's economic recovery and increase the single currency's trading risk.

Japan, despite of its historical feud with China, have been main exporters to China. Nevertheless, the high tension in 2013 and China's low consumption have led to lower trade with Japan. Japan, in turn, shifted its destination to Southeast Asia. Whatever happened with China, we can fully expect it to survive well.

For the US, China is a never-ending complication. People's Bank of China manipulation to ascertain low Yuan rate have been a subject of contention for years. However, they can't do anything about it because China has been its highest bonds buyer. If Chinese investors liquidate their assets including US bonds, then its bond's yield will go down for some time. But overall, we could say that USD may gain positive sentiment from it. Especially if its pair counterparts are the worst-impacted like AUD/USD and NZD/USD.

The most uninfluenced currency might very well be GBP. So far, there hasn't been indication that China has considerable influence in the UK. The reason may be that the UK more Middle East-oriented than East Asian-oriented on its trades and investments.

That's our editorial for today. Do you agree that China's economy is in danger? As a trader, do you feel that turmoils in could shake forex market or not?

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