by Umar Farooq
China’s economic growth is seen slowing to 6.5% in 2017 despite a strong start to the first quarter, as the government seeks to cool the property sector and temper credit growth to contain risks from a dangerous build-up of debt, a Reuters poll showed. Growth is expected to weaken further to 6.2% in 2018, the Reuters poll of over 75 economists showed, extending a slowing trajectory for the world’s second-biggest economy which grew 6.7% in 2016 for its worst performance in 26 years.
“An independent survey of China’s manufacturing sector indicates business activity grew at the slowest pace since September last month as sluggish demand dragged on production, putting the country’s factories on uncertain footing at the start of the second quarter. The Caixin-Markit manufacturing purchasing managers’ index dropped to 50.3 in April, a seven-month low that put it substantially closer to the 50-point line separating growth from contraction compared to a reading of 51.2 in March, as well as further beneath the level reported by China’s official manufacturing gauge. Manufacturers surveyed last month for the independent survey reported markedly slower growth in both output and new orders, with consumer goods output keeping overall production from falling further on declines from intermediate and investment goods. Growth in new export orders also fell to a marginal level – and the weakest reading since the current four-month growth streak began – thanks to contraction in demand for capital goods.” FT
“Big Chinese cities have launched a new round of lending curbs and purchase restrictions in an effort to cool overheated property markets, as official media warn that some have veered towards a bubble. Sky-high prices in cities including Beijing, Shanghai and Shenzhen are stoking anger, even among relatively well-off professionals. Meanwhile, controlling financial risk has emerged as the dominant economic policy theme for 2017. At the conclusion of the annual session of China’s rubber-stamp parliament last week, the government pledged to “contain excessive home price rises in hot markets”.” FT
Also, China’s export growth halved last month in dollar terms as imports slowed markedly more than expected, tracking with recent readings that suggested slower expansion in the country’s manufacturing sector in April. Exports grew 8 per cent year on year in dollar terms in April, slowing from from a 16.4 per cent rise in March, according to China’s General Administration of Customs.
In short, as the Beijing looks to put the economy on a more balanced and sustainable footing, growth is seen losing steam later this year on the back of more property cooling measures and central bank steps to raise funding costs to defuse bubble risks.
by Umar Farooq