Lujiazui Forum 2018: What will fed rate hikes do to Chinese firms?

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02:14

One reason the Lujiazui Forum is so closely watched by analysts: China's top financial policymakers are always involved.

YANG CHENGXI SHANGHAI "An interesting moment at this forum came after Central Bank governor Yi Gang made his keynote speech. Yi then found himself surrounded by journalists who asked, "will the PBOC raise interest rates?"

The questions came because the US Federal Reserve raised rates 25 basis points on Thursday.

WANG JIANG, CHAIR OF ACADEMIC COUNCIL SHANGHAI ADVANCED INSTITUTE OF FINANCE, SJTU "That was widely expected, so I don't think there's much of a surprise. I don't really think anything needs to be done. It would have been done already if so."

That's expected to cause more capital outflows from struggling emerging markets, many of which have seen their currencies strengthen against the dollar. The fear of the so called "taper tantrum" is still very real.

GARY LIU, PRESIDENT CHINA FINANCIAL REFORM INSTITUTE "China is a country that has a higher interest rate than the US. If you look at real interest rates, China is higher than the US. And since China has a very solid capital account control, the hot money would be very difficult to flow in and out."

But there's a more substantial threat. Chinese government bodies and corporations hold close to 90 billion US dollars worth of US denominated debts. That's the highest among emerging markets.

GARY LIU, PRESIDENT CHINA FINANCIAL REFORM INSTITUTE "We see a lot of companies borrowing a lot of US denominated debt. Especially real estate companies. They cannot borrow money in China so instead they borrow US debt. So this means that their debt interest burden will increase."

The policy direction of the US has been a hot topic in another forum that runs parallel with the Lujiazui gathering.

WANG JIANG, CHAIR OF ACADEMIC COUNCIL SHANGHAI ADVANCED INSTITUTE OF FINANCE, SJTU "There's also a shift in the 'dotted lines,' especially concerning the forecasts on the remaining numbers of rate hikes for 2018. The initial reactions from the market were a bit worrisome."

Experts are calling for structural reforms over the corporate sector while many companies need to improve their capital structure so as to reduce external shocks.