China’s latest signs of ‘stable growth’ will not quell investors’ long-term fears, say economists
Beijing tipped to publish another 6.7 per cent of headline growth this week, but concerns remain over country’s debt, yuan and lack of new growth engines
China’s third-quarter economic data on Wednesday might paint a picture of stable growth in the world’s second biggest economy, but the figures will not dissuade investors from worrying about the indebted country’s future, economists warn.
Immediate risks of an hard landing have abated thanks to government-backed spending, but Beijing’s structural problems of excessive capacity, ballooning debts and the absence of new growth engines are worsening, making it harder for the Chinese leadership, headed by President Xi Jinping, to manage.
Despite a headline growth rate above 6.5 per cent, investors are finding few areas to place their money. Instead they have rushed to buy properties in big cities, or simply remitted funds abroad.
“I am not worried about a short-term headline GDP [gross domestic product] figure as the current momentum of a firmer footing of economic growth may not fade immediately,” said Zhao Hao, an economist at Commerzbank in Singapore. “Yet, for the long-term, China still lacks new growth propellers.”
China’s state statistics agency is scheduled to release a flurry of economic data on Wednesday, including the third-quarter GDP as well as investment, retail, and industrial production for September.
A Reuters poll of 59 economists showed on Monday that they expected the GDP to grow 6.7 per cent in the third quarter – unchanged from the first half.
China’s Premier Li Keqiang said last week that China’s third-quarter economic performance was better than expected, having met the annual job creation target in the first nine months already.
At the same time, worries about China’s debt, the yuan and the housing market persist.
In a move to curb excessive property price gains in major cities, China’s top leadership had urged more than 20 cities to launch rules restricting home purchases, and the campaign, in turn, was expected to slow down growth in future, analysts said.
“The forthcoming housing downturn and the lack of alternative growth engines is one major reason that we have had our China GDP growth forecast of 6 per cent for 2017, slowing down from 6.6 per cent expected for 2016,” said Yao Wei, chief China economist at Societe Generale.
In the long run it would take time for China to shift its growth to services and new technologies, instead of state-led capital spending, and “economic growth will just have to be slower” in the process, Yao said.
Meanwhile, China’s yuan has weakened to its lowest level against the dollar in six years as China’s foreign exchange reserves – a rough measure of the capital inflow and outflow gap – has been shrinking quickly.
Nathan Chow, an economist at DBS, said there were more fundamental challenges, including the mounting debt and struggling manufacturing businesses, for Chinese leaders to look after beyond quarterly growth numbers.
“For the long-term, downward pressure remains,” Chow said.
While Beijing had been pledging to boost consumer power, China’s household consumption had still not taken a lead in shoring up the economy, he said.
China’s central bank data, published on Tuesday, showed that banks in China granted more credit in September than in August or July.
Calculations by the South China Morning Post showed that mortgage loans’ share of total bank credit dropped to 47 per cent in September – down from 71 per cent in August and a stunning 90 per cent in July – reflecting banks’ caution about excessive lending to home buyers.
Analysts said the focus of policy was shifting from growth to credit risks.
“Broader worries about credit risks means further monetary easing is unlikely,” Julian Evans-Pritchard, a China economist at Capital Economics, said in a research note.
Other September data has shown a conflicting picture as exports were surprisingly weak while factory gate prices surprised markets on the uptick side by ending a 54-month industrial deflation and indicated improving industrial profitability.
Yet economists are tending to expect that third-quarter GDP growth will be mainly within this year’s official target of 6.5 per cent to 7 per cent.
It is the first time that a range has been given as policymakers seemingly showed more tolerance for a slower growth.