Inside China’s financial markets

The cost of capital in China's changing markets

Policy keeps borrowing costs low in China, but that is likely to change. We estimate by how much. China’s investment-heavy economy has relied on cheap credit for a long time. Government policy, and how the economy is organized, have helped keep the cost of loans lower than if interest rates on debt were determined by economic fundamentals alone.

As China continues a transition toward a more liberalized financial system, the cost of debt looks set to rise. Where do we estimate interest rates are headed from here, freed from policy guidance and other controls? With the shifting policy outlook, we estimate the “natural rate of interest” for China – a risk-free cost of capital based on economic fundamentals – and how the cost of debt may evolve.

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The infographic below uses illustrations to convey the main talking points and areas of interest covered in the article.

 
   

Solving China’s interest rate puzzle for better return forecasting


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The cost of capital in China's changing markets


As China proceeds along its path of financial system liberalization, and investors have access to a greater array of opportunities, selection will be more important than ever. Find out more in this video with Leon Goldfeld, Portfolio Manager, Multi-Asset Solutions.

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Die Global Fixed Income, Currency & Commodities Group hält angesichts des kräftigen, weltweit synchronisierten Konjunkturaufschwungs am Basisszenario des Wachstums über Trend fest.



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