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Slow recovery may expedite reforms, boost confidence
By Ma Jun |
June 6, 2013, Thursday
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WHILE China's growth recovery is being somewhat delayed, we expect easier credit and more aggressive economic reforms to boost confidence from the second half of this year.
We revise down our 2013's full-year GDP growth forecast by 0.3 percentage point to 7.9 percent. Our forecast changes reflect a delay in growth recovery due to slower-than-expected transmission of total social financing into real economic growth and the inventory destocking from April.
However, we believe the broad trend of growth recovery in the second half of this year and the first half of next year will remain intact. The forthcoming recovery will be supported by the end of the ongoing destocking, possible credit relaxation and slower yuan appreciation, a pick-up in real estate investment (with stabilization in real estate policy), a recovery in export demand, and improved confidence due to an announcement of major reforms.
Due to a few reasons, we believe that credit policy will likely be more relaxed than we previously thought. Growth has been weaker than expected and inflation has been low in recent months, giving more room for monetary expansion. The percentage of college graduates who have found jobs is substantially lower than that of same time last year. This puts pressure on the government to boost the pace of job creation. Meanwhile, difficulties in getting additional fiscal expansion approved imply that credit easing is a more convenient option. The recent acceleration in social financing has not translated into a visible impact on the economy, raising doubt on whether non-bank financing can truly substitute bank loans.
We expect the government to announce a major economic reform package in September or October, involving a few dozen reforms in areas such as deregulation, fiscal, financial, resource pricing, capital account, rural land, and social security.
Many reforms will help lift the quality and potential rate of long-term growth. We believe that deregulation and fiscal and resource pricing reforms will benefit railway and subway, gas, water and wind. Social security reform will benefit insurance. Capital account liberalization will benefit banks and brokers. On the other hand, coal will likely be hit by reforms.
We revise down our 2013's full-year GDP growth forecast by 0.3 percentage point to 7.9 percent. Our forecast changes reflect a delay in growth recovery due to slower-than-expected transmission of total social financing into real economic growth and the inventory destocking from April.
However, we believe the broad trend of growth recovery in the second half of this year and the first half of next year will remain intact. The forthcoming recovery will be supported by the end of the ongoing destocking, possible credit relaxation and slower yuan appreciation, a pick-up in real estate investment (with stabilization in real estate policy), a recovery in export demand, and improved confidence due to an announcement of major reforms.
Due to a few reasons, we believe that credit policy will likely be more relaxed than we previously thought. Growth has been weaker than expected and inflation has been low in recent months, giving more room for monetary expansion. The percentage of college graduates who have found jobs is substantially lower than that of same time last year. This puts pressure on the government to boost the pace of job creation. Meanwhile, difficulties in getting additional fiscal expansion approved imply that credit easing is a more convenient option. The recent acceleration in social financing has not translated into a visible impact on the economy, raising doubt on whether non-bank financing can truly substitute bank loans.
We expect the government to announce a major economic reform package in September or October, involving a few dozen reforms in areas such as deregulation, fiscal, financial, resource pricing, capital account, rural land, and social security.
Many reforms will help lift the quality and potential rate of long-term growth. We believe that deregulation and fiscal and resource pricing reforms will benefit railway and subway, gas, water and wind. Social security reform will benefit insurance. Capital account liberalization will benefit banks and brokers. On the other hand, coal will likely be hit by reforms.
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