Chinese Authorities: Stock Market Bubble Has “Burst”, Economy To Face Tough Conditions Over Next Decade

China’s stock market bubble has “burst” and its economy is likely to face “tough conditions” over the next decade, Chinese authorities were reported to say during the Group of 20 nations (G20) meeting in the Turkish capital of Ankara over the weekend, the Nikkei Asian Review reports.

Zhou Xiaochuan, the Governor of China’s Central Bank, the People’s Bank of China (PBOC), told G20 counterparts three times during the meeting that a bubble in his country had burst, according to the report.

Zhu Jun, head of the PBOC’s international department, explained in an interview on Saturday that Zhou had been referring to a bubble in the Chinese stock market as opposed to the Chinese economy as a whole.

China’s Central bank later issued an official statement which detailed Zhou’s remarks.

Chinese Finance Minister Lou Jiwei later said during the meeting that the next five years would be “painful for the Chinese economy” and will involve a difficult process of structural adjustment, according to the report.

The Nikkei said that Lou’s comments indicate that the world’s second-largest economy “is preparing for a prolonged slowdown”, with global financial markets facing instability as a result.

The report notes that at previous G-20 meetings, China has often presented an optimistic outlook, but has apparently decided to offer a more realistic view amid international criticism over Beijing’s economic policy.

An official statement published on the PBOC’s website says that Chinese Finance Minister Lou Jiwei expects China’s economy to grow at about a 7 percent pace over the next four or five years as it adjusts to a “new normal” by pursuing stable growth led by domestic demand rather than boosting investment and exports.

To conclude the two-day meeting on Saturday, Finance Ministers and Central Bankers from G20 vowed to “refrain from competitive devaluations” and monitor potential spillovers amid recent volatility in financial markets, according to the final G20 communique.

A rout in Chinese equities deepened in early August after China’s Central Bank moved to devalue its currency, which shocked markets and sent global stocks, currencies, and commodities tumbling and pushed emerging market stocks into a bear market.

The Shanghai Composite has plunged nearly 40 percent and wiped out trillions of dollars since reaching a peak on June 12, when the market cap of Chinese stocks rose above $10 trillion for the first time ever, as mainland investors borrowed record amounts of funds to buy equities.

World-renowned forecasters George Magnus and Tom DeMark believe that Chinese stocks are set to see a further drop, despite a recent rout in equities, as government efforts to prop up its $5.1 trillion market have failed.

Magnus and DeMark both believe that the benchmark Shanghai Composite Index could fall around another 20 percent from their current level of 3,160 to around the 2,500 level.

China’s economic growth in the first quarter (Q1) of 2015 reached the slowest quarterly pace in six years at 7 percent from a year earlier, this was followed by the same growth rate in the second quarter (Q2) which beat economists’ estimates for 6.8 percent growth.

A recent Bloomberg survey shows that growth in China for 2015 may only register at a 6.6 percent clip, versus the official “about 7 percent” growth target for 2015 that the government has set forth, which is continuing to increase pressure on authorities to do more to meet Premier Li Keqiang’s target.

Growth has suffered in China due to a combination of an industrial slowdown, a weak housing market, and mounting local debt.

A full-year growth rate of 7 percent would be China’s slowest annual rate of expansion in 25 years.