The Outlook For China’s Economy

China 1986

Image by zebble via Flickr

With 2011 rapidly coming to a close, economists are busy making their predictions for 2012. Here is what a panel of experts had to say recently to China Daily.

Hard Landing: Ardo Hansson, lead economist for China at the World Bank, believes that China may face the risk of a hard landing if the European Union’s and the United States’ economies decline more than expected and the adjustment in the country’s property market happens too fast. However, he believes that this risk is small because consumption, which is now the driver of China’s economy, remains strong. The World Bank has lowered its gross domestic product (GDP) growth forecast for China to 9.1 percent for 2011 and 8.4 percent for 2012.

Pan Jiancheng, Deputy Director-General of the China Economic Monitoring Analysis Center at the National Bureau of Statistics does not think that China will encounter a hard landing next year because the slowdown in the economic growth is a result of the government’s active adjustment.

Inflation: Sheng Laiyun, spokesman for the National Bureau of Statistics, notes that China’s inflationary pressure has continued to fall in the last two months of 2011 due to decreasing food prices. However, Sheng believes that consumer prices may increase again in 2012 because of increasing labor and energy costs.

The World Bank estimates that China’s inflationary pressure will ease further in 2012, predicting that the Consumer Price Index (“CPI”) will finish the year at 5.3 percent and decline to 4.1 percent in 2012.

However, Peng Wensheng, Chief Economist with China International Capital Corp Ltd., is more optimistic. He forecasts CPI to be as low as 3 percent in 2012, noting that the main contributors to the soaring inflation in 2011 were cyclical in nature. Further, Peng believes that the easing of inflationary pressures will provide more room for policymakers to loosen monetary policy to stimulate the economy in 2012.

Property Markets: Will the property market collapse next year? Wang Haifeng, Director of the International Cooperation Center affiliated with the National Development and Reform Commission, says that, if the word “collapse” refers to the bankruptcy of some property developers, such a correction should be allowed in regions that have seen too much price growth and speculation over the past few years.

Wang Tao, head of China Economic Research at UBS Securities Co Ltd., doesn’t think so, noting that the weakness in China’s property market has been largely driven by the government’s tightening measures, including purchase restrictions, higher mortgage down payment requirements and price restrictions. “We have been surprised that sales and prices have held up so well after more than a year of policy tightening. “We had expected them to decline by 10 percent in 2011,” Wang told China Daily.

Trade: Will China suffer a trade deficit in 2012? Wei Jianguo, former Vice-Minister of commerce, pointed out that the ongoing European debt crisis will hurt China’s economic growth and the nation’s exports, so the possibility that China will see a trade deficit next year cannot be excluded. Huo Jianguo, Director of the Chinese Academy of International Trade and Economic Cooperation affiliated to the Ministry of Commerce, however, does not see a trade deficit as a possibility. Although Huo expects China’s trade surplus to narrow to around $120 billion in 2012, he believes that the country will have double-digit export growth.

The Yuan: Shen Jianguang, Chief economist for China with Mizuho Securities, believes that China’s currency will become more internationalized, greatly enhancing China’s role in international trade and investment. Huang Yiping, chief economist for emerging Asia with Barclays Capital, is not so sure. He believes that the focus of China’s currency reform should be on the reform of the exchange rate system, the gradual opening of the capital account and the development of yuan-denominated assets.

Wang Tao of UBS predicts that the yuan’s exchange rate against the dollar will continue to appreciate moderately to 6.0 to one by the end of 2012. Conversely, Zhuang Jian, Senior Economist at the Asian Development Bank believes that, as China’s trade surplus continues to narrow in 2012, the appreciation of the yuan will decelerate against the dollar and may even depreciate in the future as a trade deficit develops.

China’s Stock Market: Frank Gong, Vice Chairman of China Investment Banking at JP Morgan Chase & Co., believes that valuations in the A-share market have fallen so low that the systemic risk in China’s economy may have already been factored into current market prices and that the most painful period for investors has passed. He predicts a bull market if the reserve requirement ratio is lowered further. Ye Tan, financial commentator and professor at Fudan University, counters that the loosening of China’s monetary policy may help boost market sentiment in the short term, but it cannot help improve corporate earnings.

Foreign Direct Investment: I told China Daily that China will remain a magnet for foreign direct investment in 2012. While all major international companies are already here, I noted, most are planning to increase their investments in the country and many small and medium-sized companies are now coming to China for the first time. Li Xiaogang, Director of the Foreign Investment Research Center at Shanghai Academy of Social Sciences, is also positive, pointing out that a new frontier area for attracting investment in 2012 will be the service industry.

Stay tuned for MTD’s predictions for 2012.

Enhanced by Zemanta

No comments yet... Be the first to leave a reply!