Credit Suisse predicts a 20% chance that China may experience a “hard landing,” or a period of sustained growth of less than 7%, over the next 12 to 18 months.
Analysts interpret the rate increase as a strong sign of growing concern over inflation, given the Chinese government’s reluctance in using broad policy moves. The rising rates also increase the cost of the central bank’s “sterilization operation,” which the bank issues to purchase funds from exports and foreign capital inflows. Furthermore, interest rate hikes pus increased pressure on municipalities to repay debt — China’s National Audit Office calculates that local governments owe more than a fourth of the country’s GDP.
Earlier this week, Moody’s warned that Chinese banks have more exposure to local debt than originally estimated. [China, Portugal Rattle Markets]
ETFs that invest in China include:
- iShares FTSE China 25
- SPDR S&P China ETF (NYSEArca: GXC)
- PowerShares Golden Dragon Halter USX China Portfolio (NYSEArca: PGJ)
- Guggenheim China All-Cap ETF (NYSEArca: YAO)
For more information on China, visit our China category.
iShares FTSE China 25 Index Fund
