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

 
 
 

35 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

3 weeks 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) and slashing the workforce of 20,000 by 30 per c ...
Source: Business Times Singapore   Full article at: Business Times Singapore
 

 
Update
1

3 weeks 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 the doubl ...
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

Israel approves rebuilding plan for communities near Gaza
Jerusalem, Sep 21 (IANS) The Israeli cabinet Sunday approved a $360 million development initiative for the communities in the country's south, near the Gaza border, who were hit hard in the recent bloody conflict between Israel and the Hamas.
 
 
High-level Indian ministerial visits to London next month
London, Sep 21 (IANS/RAY) India's Finance and Defence Minister Arun Jaitley is scheduled to visit London Oct 13-14 for an interface with financial institutions to persuade them to invest in India.
 
 
Expressway to link Vietnam and China opens
Hanoi, Sep 21 (IANS) Vietnam's longest expressway connecting Noi Bai in capital Hanoi and the north-western Lao Cai province, bordering China, with a total length of 245 km, officially opened to traffic Sunday.
 
 
G20 deal on sharing bank data to help India battle black money
Cairns (Australia) Sep 21 (IANS) In a major step that will aid India track and recover black money stashed abroad, G20 finance ministers Sunday agreed on allowing automatic sharing of all bank information with tax authorities at the end of each year, starting 2017.
 
 
 

Latest from the Network

Miley flaunts chicken and waffles print bikini
Los Angeles, Sep 22 (IANS) It seems Miley Cyrus' latest style is inspired by food. The singer, who took a break from her Bangerz Tour, was spotted lounging in a chicken and waffles print bikini. The 21-year-old, who...
Read more on Celebrity Balla
 
Israel steps up cyber defence with new body
Jerusalem, Sep 22 (IANS) Israeli Prime Minister Benjamin Netanyahu Sunday announced the establishment of a new organisation that would spearhead the country's cyber defence operations. The decision was made pursuant...
Read more on Politics Balla
 
Wife of British hostage asks IS to free him
London, Sep 22 (IANS/EFE) The wife of a British taxi driver kidnapped by the Islamic State (IS) Sunni extremist group last December Sunday asked the jihadis to show compassion and set him free. Barbara, the wife of...
Read more on Politics Balla
 
Clashes with IS continues across Iraq
Baghdad, Sep 22 (IANS) Fierce clashes continued between the Iraqi security forces and the Islamic State (IS) Sunni extremist group across the crisis-torn country Sunday, security sources said. In western Anbar...
Read more on Politics Balla
 
Tessa James diagnosed with cancer
Tessa James has been diagnosed with cancer. The former 'Home and Away' star, 23, is battling Hodgkin's lymphoma and has returned to the Gold Coast in Australia to be with her husband Nate Myles. A statement released...
Read more on Celebrity Balla
 
Five Boko Haram terrorists surrender in Nigeria
Abuja, Sep 22 (IANS) Authorities in Nigeria Sunday confirmed that some Boko Haram terrorists have begun to surrender voluntarily following relentless onslaught by troops. At least five terrorists surrendered Saturday...
Read more on Politics Balla
 
Jemima, Russell Brand part ways
London, Sep 22 (IANS) All good things must end. The much-talked about affair between Jemima Khan and comedian Russell Brand, described as "tiger ride", has reportedly come to end too. With her impressive social...
Read more on Celebrity Balla
 
Officials penalised for terrorist attack in China's Xinjiang
Beijing, Sep 22 (IANS) As many as 17 public officials, including police officers, were given penalities Sunday after they were held accountable for the terrorist attack in China's Xinjiang Uygur autonomous region in...
Read more on Politics Balla
 
Russell Brand gives Zayn Malik family planning advice
Russell Brand gave Zayn Malik family planning advice. The One Direction hunk - who is engaged to Perrie Edwards - admits he was stunned when the 39-year-old comedian offered up some birth control tips when he bumped...
Read more on Celebrity Balla
 
Nicolas Cage buys haunted house for horror novel
Nicolas Cage once bought a haunted house. The 50-year-old actor snapped up a mansion in New Orleans previously owned by Madame LaLaurie, who's known for the torture and murder of slaves, in the hope of gaining...
Read more on Celebrity Balla