China's economic woes overblown, say analysts

Uncertainties about mainland China's economy and leadership have led global investors to shun China equities but things are not as bad as some imagine, analysts said, adding that the central government still had a lot of ammunition at its disposal.

Helen Zhu, head of China equities at BlackRock, the world's biggest money manager, said yesterday that "if the Chinese authorities cut the reserve requirement ratio (RRR) by 10 percentage points, bringing it back to the level of 10 years ago [8 per cent], it will release about US$1 trillion into the economy".

Zhu said that if monthly capital outflows continued to exceed US$100 billion in the next few months, the authorities were likely to cut RRR again. However, capital outflow pressure had eased, with carry trades unwinding and yuan devaluation would not exceed 4 per cent for the rest of the year.

The economy was not as bad as imagined, she said, with import volumes holding up and the prospects for the property sector looking better next year.

Last week, Goldman Sachs chief executive Lloyd Blankfein criticised the central government's intervention in the stock and currency markets, saying its handling of the stock market rout was "sloppy" and "ham-handed" and that he would not invest China now.

However, another US business heavyweight, General Electric chairman Jeff Immelt, said yesterday that China remained on a growth path and that he was not as negative on the world's second-biggest economy.