China’s government is investing less in the economy, with a 20% month over month growth rate in September the lowest on the year .
Fixed asset investment growth continues to trend lower from 20.3% posted in August, led by infrastructure and property investment.
This, together with the 0.3 percentage points drop in PMI new orders (to 52.5) and new export orders (to 50.4) in October, appears to support the view that while growth is stabilizing in the near term, the rebound will not be sustained, said Jian Chang, an economist for Barclays Capital in Hong Kong.
“We have argued since September that fundamental challenges including industry overcapacity, mounting local government debt, rising financial risks and a property bubble will constrain policy options,” she said.
“The government needs to tolerate a lower growth rate than 7.5% to put the economy on a sustainable growth path.” Starting this weekend, the Communist Party of China is busy with its Third Plenum meeting outlining new reforms to slowly open the doors to a freer economy.
While lip service is being paid towards communism, Premier Li Keqiang said that the country’s provinces needed to step aside and let private enterprises invest in growth instead of the government.
China’s provinces have been the poster child of oversupply in China, investing in construction, automotive, solar and other government pet industries. Under the latest reform measures, Beijing’s new leadership is sure to announce less government involvement in the economy, primarily through fixed asset investments.
The reason may be less ideological than it appears. China’s over capacity is now legendary in numerous sectors and slowdown in government infused investment growth is required before the economy runs away from itself, building airports and apartment buildings for people who don’t need them.
China’s government is likely to meet or exceed public expectations at the Third Plenary session, which ends Nov 12.
”Reforms are the only way to avoid systemic crisis, rebalance the economy, and unleash China’s growth potential,” Chang said.
She said government owned enterprises, factor price and fiscal policies are the areas where reforms are most needed, though progress is likely to be faster on financial, tax and social security reform, as well as service sector liberalization.
That said, history shows that structural reforms, while good in the longer term, tend to slow growth in the near term. For Barclays, China’s 2014 GDP should come in around 7.1%.
The International Monetary Fund has it around 7.4%. Lin Li, China strategist at Deutsche Bank in Shanghai, said GDP should be better than expected next year.
DB has growth coming in at 7.4%. “There are several major reforms coming from the Plenum and they should have a direct impact on the market as China transitions to a more market economy,” she said.
forbes.com
Fixed asset investment growth continues to trend lower from 20.3% posted in August, led by infrastructure and property investment.
This, together with the 0.3 percentage points drop in PMI new orders (to 52.5) and new export orders (to 50.4) in October, appears to support the view that while growth is stabilizing in the near term, the rebound will not be sustained, said Jian Chang, an economist for Barclays Capital in Hong Kong.
“We have argued since September that fundamental challenges including industry overcapacity, mounting local government debt, rising financial risks and a property bubble will constrain policy options,” she said.
“The government needs to tolerate a lower growth rate than 7.5% to put the economy on a sustainable growth path.” Starting this weekend, the Communist Party of China is busy with its Third Plenum meeting outlining new reforms to slowly open the doors to a freer economy.
While lip service is being paid towards communism, Premier Li Keqiang said that the country’s provinces needed to step aside and let private enterprises invest in growth instead of the government.
China’s provinces have been the poster child of oversupply in China, investing in construction, automotive, solar and other government pet industries. Under the latest reform measures, Beijing’s new leadership is sure to announce less government involvement in the economy, primarily through fixed asset investments.
The reason may be less ideological than it appears. China’s over capacity is now legendary in numerous sectors and slowdown in government infused investment growth is required before the economy runs away from itself, building airports and apartment buildings for people who don’t need them.
China’s government is likely to meet or exceed public expectations at the Third Plenary session, which ends Nov 12.
”Reforms are the only way to avoid systemic crisis, rebalance the economy, and unleash China’s growth potential,” Chang said.
She said government owned enterprises, factor price and fiscal policies are the areas where reforms are most needed, though progress is likely to be faster on financial, tax and social security reform, as well as service sector liberalization.
That said, history shows that structural reforms, while good in the longer term, tend to slow growth in the near term. For Barclays, China’s 2014 GDP should come in around 7.1%.
The International Monetary Fund has it around 7.4%. Lin Li, China strategist at Deutsche Bank in Shanghai, said GDP should be better than expected next year.
DB has growth coming in at 7.4%. “There are several major reforms coming from the Plenum and they should have a direct impact on the market as China transitions to a more market economy,” she said.
forbes.com
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