viernes, 14 de marzo de 2014

viernes, marzo 14, 2014

Analysts see prospects for China economic support

Mar 12, 2014 10:30am

by James Kynge



A gloomy outlook for key Chinese economic data to be announced on Thursday is prompting analysts to predict that Beijing may take steps to stimulate the economy to prevent GDP growth from falling too far below its target of “about 7.5 per cent” this year.

The shifting perceptions follow a downbeat forecast from the State Information Centre, a government think tank, which projected GDP growth in the first quarter of this year may come in at “nearly 7.5 per cent”, down from 7.7 per cent in the whole of 2013. It also said fixed asset investment – a key indicator of Chinese demand for metal ores, steel, cement and other inputs – would grow at 18.6 per cent in the quarter, down 2.3 per cent year on year.

Stephen Green, head of Greater China research at Standard Chartered, said that a sharp easing in interbank interest rates in recent days may be an early indication that Beijing is preparing a more supportive economic policy. Further actions could include a cut in bank required reserve ratios – which would release more liquidity into the economy – and an invigoration of investment projects under the current five year plan, Green added.

The one-week Shanghai Interbank Offered Rate (Shibor) declined 4.7 basis points on Wednesday to 2.11 per cent, extending its recent sharp decline (see chart).



Jianguang Shen, Greater China chief economist at Mizuho Securities, said that the recent depreciation of the renminbi against the US dollar and the decline in interbank rates signified that “monetary policy has started to ease already”. He added that “we continue to expect more substantial fiscal spending to be announced in order to raise investment and stabilise growth. Depending on the date when the stimulus measures are launched, we expect GDP growth to drop below 7.5 per cent in 1Q and perhaps go even lower in 2Q.”

Craig Botham, emerging markets strategist at Schroders, said he thought Beijing may try to stimulate growth through non-credit means, perhaps cutting taxes to boost consumer spending and reduce the burden on corporations struggling to service huge debts.

But while several analysts identify an increased likelihood that supportive economic policies may be announced, there is no consensus on when Beijing may act or whether it will formally announce measures to boost the economy or merely tweak some elements of policy quietly to offset developing financial frailties.

Several inter-related constraints conspire to make any stimulus initiative by Beijing delicate to execute. Any credit-centric stimulus would risk setting back the progress that China has made in slimming down its sprawling shadow finance system. An investment-centric programme, for its part, could end up compounding the issue of chronic overcapacity in heavy industrial sectors such as steel and cement.

However, analysts said, allowing the slowdown to continue unchecked in an environment of tightening credit could trigger a domino effect of corporate bond and trust product defaults. Chaori Solar, a struggling solar cell company, became the first domestic bond to default earlier this month.

The size of China’s bond and trust markets makes the spectre of mass defaults deeply undesirable to Beijing; some 5,000 trust products worth an estimated Rmb3tn are due to mature this year. Local government debt, much of which exists in the form of bonds, reached Rmb17.9tn at the end of June last year.

Given such constraints, some analysts think that Beijing may opt for a dynamic approach to liquidity management, trimming excesses while ensuring that the economy grows fast enough to prevent a tide of defaults.

Schroders’ Botham said policy makers may decide to adopt an “incremental approach” to financial defaults, permitting enough distress to impose discipline but not so much as to trigger panic. This approach could involve companies being allowed to default on their bond interest payments – as was the case with Chaori – but not on their principals. In addition, smaller trust products may be allowed to default, but not larger ones.
Judgments on whether or not Beijing will be able to pull off this balancing act, Botham said, defines the line between China optimists and China pessimists.

The National Bureau of Statistics is due to announce data on industrial production, retail sales and fixed asset investment for the January-February period on Thursday.

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