Bounce in China’s economy may be short-term rebound, not long-term reversal: top think tank
Researchers at a top government think tank have urged Beijing not to relax its focus on stabilising the economy, saying recent better-than-expected data might reflect only a short-term rebound, rather than a long-term reversal of slowing growth.
Xu Hongcai, a research division chief with the China Centre for International Economic Exchanges, said an expected imminent cut in the central bank’s reserve requirement would help stabilise the economy, but he saw little room to cut benchmark interest rates this year.
Meanwhile, a survey by the Ministry of Commerce found nearly 60 per cent of 3,000 trade enterprises saw the outlook for exports as more severe this year and “dared not be optimistic”.
China’s GDP rose 6.7 per cent in the first quarter from the previous year, a level within the government target for this year, and officials say key indicators are better than expected.
Economists are concerned over the sustainability of recent growth. They say it has been driven by the old-fashioned way – through property investment and infrastructure construction – and that the increase of credit will add to an already heavy corporate debt load.
Xu said increasing the money supply and investing to stimulate growth could work in the short term but would have “big negative consequences”.
Zhang Xiaoqiang, executive vice-director with the think tank, said some big companies were putting the banks loans into their deposit accounts, indicating some was not flowing to the real economy but instead remaining idle in the banking system.
China’s banks extended 4.61 trillion yuan (HK$5.51 trillion) in new loans in the first quarter of the year, up 930 billion yuan from a year earlier, according to the People’s Bank of China.
The removal of obsolete capacity, such as in the steel and coal sectors, might lead to pressure on employment, increase bad loans by banks and drag down tax income and growth at the local government level, Zhang said.
Asked whether GDP might reach 7 per cent or more, Xu said: “The reality in resources, energy and the environment does not support a continuous upward trend. Therefore, the recent bounce is a short-term and mild rebound, but it is not a reversal.
“The policy to support growth cannot be [relaxed] otherwise [growth] will fall.
“There is basically no room to cut interest rates as we are facing negative interest rates. Further lowering interest rates may trigger capital outflows, so basically there is no space for a rate cut this year.”
He said cutting the reserve requirement was “imperative” and forecast the central bank would lower its reserve requirement at the end of April. He expected GDP to rise 6.8 per cent in the second and third quarters of the year from 6.7 per cent growth in the first three months, and to slow to 6.7 per cent in the final quarter.
His comments came as the Ministry of Commerce said weak external demand had not turned around and that export orders had increasingly gone overseas as China’s traditional advantage of low labour costs weakened.