China's Financial Transformation in the Context of Slowdown and Deleverage

摘要

China stands in a critical inflexion point, because its credit-fuel investment model has become obsolete. China's current slowdown has revealed that its original growth drivers have been exhausted, whereas its debt accumulation has reached unsustainable highs. Hence, China is in urgent need of implementing an efficient deleveraging process at a time when slowdown and demographic pressure make such a process difficult. There is a danger that slowdown, deflation, and deleveraging will bounce negatively into each other. The deflationary tendencies, if uncontrolled, will propel China into a liquidity trap and threaten to draw the economic system to a halt.