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17 Mar 2016
China: Authorities target marginally slower growth - NAB
Gerard Burg, Research Analyst at NAB, suggests that the Chinese authorities target marginally slower growth, but are content to let debt position deteriorate.
Key Quotes
“China’s policy makers met at the National People’s Congress in early March, announcing an economic growth target range of 6.5-7%. In addition, they released a target growth rate for total social financing of ‘around 13%’ – which would result in a further deterioration of debt-to-GDP.
As noted in this month’s China Economic Update, a broader estimate of China’s debt puts this figure at around 308% of GDP – a level comparable to many advanced economies and particularly high for a still developing country. Chinese authorities are now facing a debt dilemma – they can no longer allow debt to grow unchecked, however controlling debt growth would mean accepting a slower rate of economic growth. At least for 2016, they appear content to allow the former to happen.
Industrial production growth slowed to a seven year low in January-February, while fixed asset investment accelerated slightly, on the back of stronger investment in real estate. New construction starts were stronger over this period, but it is too early to know if this is a trend that can be sustained.
Retail sales were a little softer – with real retail sales growth likely dipping below 10% yoy, slightly weaker than the levels recorded across most of 2015 but still robust.
At the end of February, the People’s Bank of China (PBoC) cut the Required Reserve Ratio for the fifth time in a year – down to 17% for large institutions – potentially adding RMB 690 billion in liquidity to financial markets. As we have previously noted, these policy changes are not necessarily stimulatory, as RRR cuts have been necessary to maintain liquidity in the finance sector, given the capital outflow in recent years.”
Key Quotes
“China’s policy makers met at the National People’s Congress in early March, announcing an economic growth target range of 6.5-7%. In addition, they released a target growth rate for total social financing of ‘around 13%’ – which would result in a further deterioration of debt-to-GDP.
As noted in this month’s China Economic Update, a broader estimate of China’s debt puts this figure at around 308% of GDP – a level comparable to many advanced economies and particularly high for a still developing country. Chinese authorities are now facing a debt dilemma – they can no longer allow debt to grow unchecked, however controlling debt growth would mean accepting a slower rate of economic growth. At least for 2016, they appear content to allow the former to happen.
Industrial production growth slowed to a seven year low in January-February, while fixed asset investment accelerated slightly, on the back of stronger investment in real estate. New construction starts were stronger over this period, but it is too early to know if this is a trend that can be sustained.
Retail sales were a little softer – with real retail sales growth likely dipping below 10% yoy, slightly weaker than the levels recorded across most of 2015 but still robust.
At the end of February, the People’s Bank of China (PBoC) cut the Required Reserve Ratio for the fifth time in a year – down to 17% for large institutions – potentially adding RMB 690 billion in liquidity to financial markets. As we have previously noted, these policy changes are not necessarily stimulatory, as RRR cuts have been necessary to maintain liquidity in the finance sector, given the capital outflow in recent years.”