Navigating China's Slowdown

|
Includes: CHN, CN, CXSE, FCA, FXI, FXP, GCH, GXC, JFC, MCHI, PGJ, TDF, XPP, YANG, YAO, YINN, YXI
by: The Financialist

Summary

Volatility in the markets and concerns about debt and capital outflows have fueled questions about the outlook for China.

The views of China analysts today diverge widely, observed veteran China-watcher Huang Yukon, Senior Associate, Asia Program, at the Carnegie Endowment, and Advisor to the World Bank and the Asian Development Bank.

To some, China is facing a debt crisis, but its debt position is actually better than Singapore's, Huang observed.

Given the comprehensive transformation it is undergoing, China's economy is now much more complicated, said Christopher Balding, Associate Professor of Finance and Economics at the HSBC Business School of Peking University Graduate School, in a session on the Chinese economy at the Credit Suisse 2016 Asian Investment Conference (AIC). Volatility in the markets and concerns about debt and capital outflows have fueled questions about the outlook for China.

"Money is leaving in a very quiet manner," Balding noted. "It is not foreign debt repayments. Lots and lots of people are taking their money out of China and placing it elsewhere." While China's growth figures are overstated, the economy "is not as bad as what people say but at the same time it is definitely not good," he added.

The views of China analysts today diverge widely, observed veteran China-watcher Huang Yukon, Senior Associate, Asia Program, at the Carnegie Endowment, and Advisor to the World Bank and the Asian Development Bank. "By historical standards, China is doing very well but people are pessimistic."

To some, China is facing a debt crisis, but its debt position is actually better than Singapore's, Huang observed. "What you see in China is financial deepening." The Chinese economy is like a mismanaged and distorted company that can be turned around and kept on a growth path if reforms are done right, Huang argued. His advice: Additional growth can be squeezed out if China manages its urbanization better, reforms SOEs and addresses regional over-investment.

Li Yang, Director of the National Institution for Finance & Development and Head of the Academic Division of Economics at the Chinese Academy of Social Sciences (CASS), offered a more positive outlook: "We are achieving a more sustainable growth pattern. We are not talking about quantity but quality. We are heading for a more rational framework that is acceptable to all. And we are focusing on total factor productivity and supply-side management."

Asked if China is heading for a hard landing, Li was adamant that the slowdown would not lead to catastrophe. "Fiscal and financial crises are impossible in China," he declared.

Original post