Entering 2016, the global economy is confronted with a number of risks. This has resulted in projections made by different economic institutions being at odds with each other.

Recently, the Financial Times collected the views and opinions of investors and strategists, and presented a selection of seven possible--though not probable--tail risks that the global economy may confront this year. Tail risk is defined as blows to investments that may occur, though are not necessarily likely to happen. Such risks include inflation in the United States, Europe's economic growth exceeding the U.S.', the UK's withdrawal from the European Union, etc.

Among these seven risks, the Chinese economy was the source of two, naming the prospect of a hard landing and a currency collapse. The message being sent is that it would be in the best interests of market investors throughout the world to keep a close eye on China's economic trends.

Why does the international market focus so much attention on China? A major reason can be attributed to a 3-percent depreciation of the yuan following the sudden reform of the yuan parity mechanism on August 11, 2015. That slump triggered drastic fluctuations within the global foreign exchange market as well as the commodities market.

It is clear to everyone that China's economy has a significant impact on the global market. China's economic growth is losing momentum and will face downward pressures this year. Moreover, the Chinese Government is carrying out new rounds of economic restructuring and reform. This is why some investors are hedging their bets due to mounting concerns and uncertainties.

However, those international investors' assumptions have deviated from the realities of the nation's economic issues. Admittedly, the current situation is difficult--but international investors seem to have ignored two fundamental factors regarding China's economy.

On one hand, market-oriented economic reforms are continually being carried out in an all-around manner, which has become an irresistible trend. After years of reform and opening up, China's economy has been characterized by regional disparity. Southeast coastal regions, for example, have reached the level of moderately developed countries. On the other hand, some central and western regions are less developed. It's such regional economic gaps that generate a buffer zone allowing China to mitigate and prevent problems from affecting the overall economic situation.

Go to Forum >>0 Comment(s)