Eurozone debt crisis 'is key risk to Chinese growth'

The eurozone debt crisis has been cited as the most significant risk factor in China's growth efforts.

According to the International Monetary Fund, the country - which is the second-largest economy in the world - is set to expand by eight per cent in the current financial year, but if decision-makers fail to make progress in the European single currency region, this figure may be slashed by half.

Furthermore, currency appreciation continues to be a crucial factor in the package of reforms required to review the Chinese economy.

If the yuan renminbi was stronger versus the dollar, it would increase household purchasing power, help in the expansion of the services and non-tradable industries and facilitate financial sector reform.

Currently, reserves are above standard metrics and the currency is moderately undervalued, therefore it should continue to appreciate by reducing government intervention over the medium-term.

Policymakers in Beijing have taken numerous steps to encourage growth, such as reducing interest rates twice in as many months and lowering the required amount banks need to have in reserve to stimulate lending to businesses, facilitating growth.

But, the eurozone financial crisis still bears down heavily on the nation, with its economy slowing to a three-year nadir in the second quarter of this year, echoing the fiscal turmoil overseas.

The single currency region is a key market for Chinese export and investors fear that if the debt crisis worsens, it may bring down consumer confidence and demand, leading to slower exports.

"Assuming no policy response in China, growth could decline by as much as four percentage points in response to a one and three quarter percentage point slowdown in global growth," the IMF stated.

At close this morning (July 25th), the Shanghai SSE Composite was higher by 0.2 per cent to an index value of 2146.5, while the Hong Kong Hang Seng ended lower by nearly 0.3 per cent to 18848.8 points.