HONG KONG — Economists in China forecast the economy will slow this year due to President Xi Jinping’s reform push but will hold steady later, thanks to higher public spending, a recent survey by The Nikkei and Nikkei Quick News found.
The survey queried economists in Hong Kong and mainland China on their outlooks for the domestic economy. Questionnaires were sent out in early to mid-December and 21 responses were received.
In 2012, China’s gross domestic product grew by 7.7%. In the July-September quarter of this year, GDP growth reached 7.8%, year on year. The average forecast for October to December was for 7.7% growth, slowing to 7.6% for all of 2013 and holding steady at that pace in 2014. Most respondents were optimistic that growth would stabilize after a slight decline.
Li Miaoxian, an economist at Bocom International, predicted the government’s reform initiative will slow growth in the short term, but Louis Kuijs of RBS said recoveries in Japan, the U.S. and Europe bode well for China’s exports.
“Since mid-2013, growth has picked up as exports recovered amid better global demand,” Kuijs said. Coupled with the difficultly of changing an investment-fueled growth model over the short term, as pointed out by JP Morgan’s Zhu Haibin, most growth forecasts fell in the mid-7% range.
Yuan headed higher
The yuan is expected to strengthen. The economists’ average forecast came to 6.0005 yuan per dollar by the end of next year, with many betting the currency will rise into the 5 yuan range. That compares with a rate of 6.07 yuan per dollar now.
“Currency appreciation is an essential part of the package to rebalance the economy toward higher domestic consumption, and it is warranted in light of (China’s) continued balance of payments surplus,” said Stephen Schwartz of BBVA.
The average forecast rise in the consumer price index came to 2.7% for 2013 and 3.2% for both 2014 and 2015, suggesting the economists do not fear that rising prices for property in urban areas and other forms of asset inflation will lead to a spike in consumer prices. Xie Yaxuan of China Merchants Securities said it would not be necessary for financial authorities to fine-tune monetary policy for a while, as inflation pressure is modest. Very few respondents called for changes in policy rates or reserve requirements over the next 12 months.
Assessing the reforms
The survey also asked about the viability of economic measures outlined by the leadership at the Third Plenum of the Communist Party of China’s Central Committee in November. A total of 16 responses were received.
The respondents were all favorable toward the economic proposals. Of these, easing the one-child policy was seen as being easiest to achieve, followed by economic-opening policies such as liberalization of interest rates and a review of price controls over food and energy.
“Financial reform is at the forefront,” said Shen Jianguang, an economist at Mizuho Securities, suggesting further liberalization in yuan transactions and interest rates is likely.
There was greater skepticism on the likelihood of restructuring state-run enterprises and improving local-government finances. Most respondents also pointed out the difficultly of establishing the rule of law in China.
The survey has been been conducted every three months since the April-June period of 2011. The economists who responded are: Liu Li-Gang (ANZ); Paul Tang (Bank of East Asia); Yang Zhi (Bank of Tokyo-Mitsubishi UFJ); Stephen Schwartz (BBVA); Li Miaoxian (Bocom International); Xie Yaxuan (China Merchants Securities); Liao Qun (Citic Bank International); Tao Dong (Credit Suisse); Kevin Lai (Daiwa Securities); Chris Leung (DBS Bank); Ma Jun (Deutsche Bank); Cui Li (Goldman Sachs); Zhu Haibin (JP Morgan); Ben Kwong (KGI); Larry Hu (Macquarie Group); Shen Jianguang (Mizuho Securities); Helen Qiao (Morgan Stanley); Zhang Zhiwei (Nomura); Louis Kuijs (RBS); Stephen Green (Standard Chartered); Wang Tao (UBS).
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