China bubble fears overblown, says top JP Morgan analyst
Fears of a mainland bubble have been overdone, according to Jing Ulrich, JP Morgan's managing director and chairman of China equities and commodities.
'I just don't think there is a catalyst for the so-called bubble to burst, she said in a keynote speech at the Mines and Money conference in Hong Kong yesterday.
She said monetary tightening would continue with the government reducing the amount of credit available.
Overall loan growth surged 33 per cent last year compared with the average of 18.4 per cent over the past seven years.
It is currently growing at 29.3 per cent, but Ulrich said the government wanted to reduce credit growth from last year's level of 9.6 trillion yuan (HK$10.9 trillion) to 7.5 trillion yuan this year.
At the same time Beijing would reduce the pace of credit growth to avoid the release of too much money in a concentrated period of time. Last year 50 per cent of lending occurred in the first quarter of the year.
The government also wants to revert to its traditional practice of growing money supply by 30 percentage points in each of the first two quarters and by 20 percentage points in the last two quarters of the year.
Despite the sharp slowdown in money supply, Ulrich said this would not result in a credit crunch since significant amounts of cash borrowed by corporates last year had not been spent. 'Even though bank lending slows, the Chinese corporate sector is very cashed up,' she said.
Ulrich added that although bank reserve ratios were high they would probably go higher. But since they were not effective in curbing money supply the central bank would probably raise interest rates.
While there were speculative pockets in the economy particularly in high-end property, Ulrich said that property prices had not moved that fast in second, third and fourth tier cities.
The fundamental difference between the US and the Chinese property market, Ulrich said, was that leverage ratios in the mainland property sector were quite low with the loan to value ratio in China at about 45 per cent.
'In the US, you could get a mortgage without any assets, or a down payment. That never happens in China,' she said.
Chinese consumers were drawing down their savings since real interest rates were now negative and were investing in property.
'Think of property as a store of value for the Chinese,' she said.
She noted that the Chinese banking system had the equivalent of US$8.5 trillion in liquid savings, roughly 170 per cent of the country's gross domestic product.
The economy rebounded strongly last year and would continue its strong growth in 2010. But growth will be more balanced than last year.
While investment in fixed assets accounted for 8 percentage points of real GDP in 2009, consumption 4.6 percentage points and exports minus 3.9 percentage points, growth would be more balanced this year with investment in fixed assets slowing to 4.7 percentage points, consumption at 4.5 percentage points and exports at 0.2 percentage points.
'You are going to see an interesting and changing picture of the economy compared with last year,' Ulrich said.