Chinese financial reforms a must for GDP growth

Moody's says China must speed-up the pace of financial reform.

The U.S. ratings agency said reforms are essential if China is to sustain its economic growth. It forecast that China’s economy will grow 7.5% each year from 2012 to 2014. Moody's, however, warned that easy economic growth for China is over.

Difficult financial reforms that institutionalize market-driven processes must be made to limit inefficiencies. Critical areas for reform include increasing market-based competition, improving regulation to allow greater certainty and making China's huge state firms more efficient.

China's trend growth rate will likely slow more rapidly than otherwise without more market-based price signals driving the efficient allocation of capital and improving the competitive delivery of services, Moody's said.

Banks continue being battered by China's previous credit extravagance, including the RMB4 trillion stimulus in 2008. China's total bank assets doubled in the past four years, leaving them exposed to industries now suffering from excess production capacity and weak sales,

Total assets in China's banking system are now worth 240% of China’s GDP of US$18 trillion, which is much higher than any other major emerging economy, Moody's said.