China economy

China’s economic growth will be surprisingly strong, CICC says

China International Capital Corp believes GDP will expand 6.8 per cent this year and the yuan will steady against the dollar, amid signs economy picking up steam

PUBLISHED : Monday, 27 February, 2017, 3:29pm
UPDATED : Monday, 27 February, 2017, 5:18pm

A leading Chinese securities brokerage house has significantly revised up its forecasts for the country’s economic growth and its currency’s exchange rate against the dollar, painting a rosier picture of the prospects for the world’s second biggest economy.

China’s headline gross domestic product is expected to rise 6.8 per cent this year, compared with a previous estimate of 6.7 per cent, according to a research note published by China International Capital Corp.

The nation’s nominal GDP rate, which is not adjusted for inflation, may expand 11.5 per cent from an earlier estimate of 9.3 per cent thanks to stronger-than-expected investment in infrastructure and real estate, and the yuan may only weaken slightly to stay at 6.98 against the dollar by the end of the year, the research note said.

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China’s producer price index, meanwhile, may surge 7.5 per cent this year from a previous estimate of 3.6 per cent, according to the report’s authors, economists Liang Hong and Eva Li.

“Investment has been gaining speed and the rebound cycle may last longer than previous expectations,” they wrote.

Local governments’ fiscal spending on infrastructure and a recovery in manufacturing will help corporate profitability, they added.

The research note was published as the future prospects for the Chinese economy have again become a subject of debate.

Moody’s, the rating agency, said in its global economic outlook published last week, that the risks of a sudden and sharp deceleration in China was one of four “major systemic risks” in its forecast of a global economic recovery this year. Moody’s said China’s GDP growth would slow to 6.3 per cent in 2017 from a growth rate of 6.7 per cent last year.

The Chinese government will release economic indicators for the first two months of the year in the coming days to give a clearer picture of the situation.

Inflation and bank credit data released earlier showed that China’s economy is on an expansionary path. Newly-issued bank credit in January exceeded two trillion yuan (US$291 billion), prices of industrial materials such as iron ore are rising sharply and exports were stronger-than-expected in the first month of the year.

The China International Capital Corp economists said the growth of Chinese exports would “quicken further as the global industrial cycle continues to strengthen”, despite constant trade war threats from Washington under President Donald Trump.

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The investment bank said the yuan exchange rate would weaken to 6.98 against dollar by the end of this year, rather than previous estimate of 7.18. It means only a two per cent depreciation, beating previous mainstream expectations of about five per cent.

The economists warned that a sudden drop in external demand or a mishandling of monetary policy, namely an excessively tightened stance, may darken China’s economic prospects.

“In the base scenario, however, there will be a lot of thunder but few raindrops from US protectionist measures against China,” the economists wrote, suggesting that Trump’s trade threats against China will not materialise.