360° Coverage : China 2014 Forecast: Cloudy

2 Updates
China 2014 Forecast: Cloudy

China 2014 Forecast: Cloudy

Jan 13 2014, 7:34am CST | by

In 2014, China is going to have to do something it hasn’t done for a long time – generate growth from something other than fixed asset investment. Will it succeed? Well, the jury is still out....

Filed under: news

 
 
 

33 weeks ago

China 2014 Forecast: Cloudy

Jan 13 2014, 7:34am CST | by

In 2014, China is going to have to do something it hasn’t done for a long time – generate growth from something other than fixed asset investment. Will it succeed? Well, the jury is still out.

Analysts are starkly divided on China’s 2014 prospects. Deutsche Bank is the most bullish, expecting GDP growth of 8.6%. As the only investment bank out of 55 surveyed by Bloomberg expecting growth below 7%, Societe Generale is the most bearish, (it expects 6.9%). Not surprisingly, the mean and median forecasts are both 7.5%, 2013’s target.

China has not officially set a GDP target for 2014, but it may do so at the Two Conferences in March. However, there are growing calls in China for top leaders to no longer set an official target but rather give guidance, an effort mainly designed to reduce the importance (in the eyes of officials) of generating GDP growth.

If there was any doubt that such a change in emphasis is needed, it was put to rest when authorities published the results of the most recent survey of local government debt. Data from the National Audit Office showed that local government liabilities rose to 17.9trn yuan by the end of June 2013, up from 15.9trn yuan at the end of 2012 and 10.7trn yuan at the end of 2010.

In general, the roughly 5trn yuan increase from 2010 to 2012 is not that concerning given China’s known preference for local government-led investment and the fact that local government borrowing as a share of total borrowing in the economy actually fell from an estimated 36% and 25% of total social financing in 2009 and 2010 to just 19% and 15% in 2011 and 2012. Rather, the concern is the 2trn yuan increase in debt in H1 2013, which represented a 62% increase from the average amount of new debt accumulated over the previous four half-year periods.

The ramp up in debt was primarily facilitated by an expansion of so-called shadow banking, with sources of borrowing other than bank loans and bonds rising from 10% of debt in 2010 to 31% in H1 2013.

In particular, banks used complex financial transactions to transfer money invested in wealth management products (WMPs) to other entities such as trust companies that then lent these funds to local government units at high yields. The liquidity squeezes in June and December were one side effect of this practice as banks could not recover funds from trust loans to repay maturing WMPs, forcing them to turn to the interbank market to borrow money.

Although the debt survey was not released to the public until December, top authorities had certainly seen the results prior to the Third Plenum in November and Central Economic Work Conference (CEWC) in December, where top officials outlined China’s policy agenda for the next ten years and one year, respectively. It was the concern over local government debt that led to three significant policy announcements in December:

  1. The CEWC highlighted management of local government debt as a key priority for 2014, the first time local government debt risks have ever been mentioned at the annual policy meeting.
  2. The National Development and Reform Commission, China’s top economic planner, called for a reduction in government investment in competitive sectors, limiting it to projects such as social housing and related infrastructure, rural infrastructure, environmental protection and railways projects in central and western China.
  3. The State Council released its Document 107 demanding stricter regulation of shadow banking. The document called for a reduction of activities newly defined as shadow banking, including trust loans, some WMPs, financial leasing and certain bank credit guarantees.

The highlight of local government debt risks, restrictions on their investment and clampdown on their fundraising channels make it inevitable that China will see a slowdown in fixed asset investment (FAI) in 2014. Given China’s love of investment, Societe Generale’s 6.9% GDP target doesn’t look so much like an outlier any more.

In practice, the growth rate is unlikely to fall to those levels as Premier Li Keqiang in November set a floor on growth at 7.2%, the level he claims China needs to ensure full employment. Without government-led FAI as a driver, it is easy to imagine growth quickly decelerating to this level, however. China’s latest GDP figures showed that although GDP growth rebounded to 7.8% in Q3 2013, it was only achieved after a huge increase in FAI, which accounted for a five-year high 55.8% of GDP.

The big question, then, is how will China generate growth?

The answer, as bizarre as it may sound, is the private sector. The government began reducing the number of items that need government approval last year and will continue to cut red tape this year. Meanwhile, SOE reform is pushing ahead, with four major economic hubs, Shanghai, Guangzhou, Chongqing and Tianjin, outlining plans to reform SOEs, make them more efficient and increase private ownership of assets. It is hoped that the reduction of government control and deregulation will drive private investment in both underdeveloped and formerly state-led sectors.

Any view on whether or not this will work is pure speculation. The only thing that has always been a certainty in China, government-led investment, is now uncertain. So, can new growth points emerge driven by an entrepreneurial private sector and can the government refrain from interfering and resorting to its old tricks? Hold on to your hats folks, it’s going to be quite a ride.

Source: Forbes Business

 
Update
2

4 days ago

Khazanah throws MAS RM6b lifeline

Aug 29 2014 5:01pm CDT | Source: Business Times Singapore

August 30, 2014 1:15 AMKHAZANAH Nasional will inject RM6 billion (SS$2.4 billion) over three years to resuscitate loss-making Malaysia Airlines (MAS) under a recovery plan that includes even an Act of Parliament. Other key moves are migrating its operations, assets and liabilities to a new company (NewCo) a ...
Source: Business Times Singapore   Full article at: Business Times Singapore
 

 
Update
1

5 days ago

MAS posts loss of RM307m for Q2

Aug 28 2014 5:00pm CDT | Source: Business Times Singapore

August 29, 2014 1:13 AMMALAYSIA Airlines (MAS) registered a loss of RM307 million (S$122 million) for the second quarter to end-June, but warned of worse to come in the second half when the "full financial impact of t ...
Source: Business Times Singapore   Full article at: Business Times Singapore
 

 

Don't miss ...

 

<a href="/latest_stories/all/all/30" rel="author">Forbes</a>
Forbes is among the most trusted resources for the world's business and investment leaders, providing them the uncompromising commentary, concise analysis, relevant tools and real-time reporting they need to succeed at work, profit from investing and have fun with the rewards of winning.

 

blog comments powered by Disqus

Latest stories

Watch your diet to reduce diabetes risk
London, Sep 3 (IANS) What you eat and drink, and not just the number of calories, is a significant factor in diabetes risk, a study showed.
 
 
2016 NASA asteroid mission awaits your messages
Washington, Sep 3 (IANS) NASA has invited the public to submit short messages and images on social media that could be placed in a time capsule aboard a spacecraft to be launched in 2016 for an asteroid study.
 
 
Exercise can stem frequent night urination in men
New York, Sep 3 (IANS) Men who are physically active are at lower risk of nocturia - waking up at night to urinate, says a study.
 
 
Nippon Life keen to hike stake in Reliance Life
Tokyo, Sep 3 (IANS) Nippon Life Insurance of Japan wants to hike its stake in its Indian joint venture Reliance Life Insurance to 49 percent from 26 percent, when India notifies the decision of higher foreign equity cap in the sector, a news report here said.
 
 
 

Latest from the Network

Watch your diet to reduce diabetes risk
London, Sep 3 (IANS) What you eat and drink, and not just the number of calories, is a significant factor in diabetes risk, a study showed. Losing weight may be good but not enough to prevent Type 2 diabetes as...
Read more on Celebrity Balla
 
35 militants killed in Afghanistan
Kabul, Sep 3 (IANS) At least 35 Taliban militants have been killed in fresh military operations across Afghanistan, the interior ministry said Wednesday. The Afghan National Security Forces (ANSF) carried out...
Read more on Politics Balla
 
Vince Vaughn for The Politician?
Vince Vaughn is set to star in 'The Politician'. The 'Wedding Crashers' star is attached to take on the lead role in the upcoming Columbia comedy about a scandal-hit politician, according to The Hollywood Reporter. The...
Read more on Movie Balla
 
910 militants, 82 soldiers killed in North Waziristan
Islamabad, Sep 3 (IANS) At least 910 militants and 82 Pakistani soldiers have been killed in operation Zarb-i-Azb in North Waziristan, the military said Wednesday. The statement issued by the Inter-Services Public...
Read more on Politics Balla
 
'Headscarf instils positive body image in British Muslim women'
London, Sep 3 (IANS) British Muslim women who wear a hijab (headscarf) generally have a more positive body image, are less reliant on media messages about beauty ideals and place less importance on appearance than...
Read more on Celebrity Balla
 
Console games new threat to global climate: Study
New York, Sep 3 (IANS) Console games downloaded over broadband internet are causing more greenhouse gas emissions than Blu-ray discs delivered via retail stores, new research reveals. It is not always true that...
Read more on Celebrity Balla
 
Human greed driving species towards extinction: Study
Washington, Sep 3 (IANS) In a disturbing trend, scientists have reported that species are becoming extinct as much as 1,000 times more frequently - 10 times worse than the previous estimates - owing to human population...
Read more on Politics Balla
 
Kelly Brook's traumatic childhood
Kelly Brook has opened up about ''violent and horrific'' memories from her childhood. The 35-year-old actress has revealed that although she enjoyed some aspects of growing up on a council estate in Kent, South East...
Read more on Celebrity Balla
 
Emmy Rossum not 'easy'
Emmy Rossum insists she's not ''easy'' like her 'Shameless' character. The 27-year-old actress stars as Fiona Gallagher in the US remake of the hit series and she's revealed that although she's had sex on a first date,...
Read more on Celebrity Balla
 
2016 NASA asteroid mission awaits your messages
Washington, Sep 3 (IANS) NASA has invited the public to submit short messages and images on social media that could be placed in a time capsule aboard a spacecraft to be launched in 2016 for an asteroid study. Called...
Read more on Apple Balla