Data point to Chinese economy shrugging off sluggishness and stabilizing

Updated: 2016-04-22 07:08

By Andrew Moody(China Daily Europe)

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 Data point to Chinese economy shrugging off sluggishness and stabilizing

Property investment in China rose by 6.2 percent in the first three months of this year. Provided to China Daily

Many economic observers believe that if the government was prepared to target slower growth, it would create an easier environment to carry out key reforms.

Kuijs at Oxford Economics says it is possible to have this kind of boost and still carry out reforms.

"Reform is not just one-dimensional. There are reforms taking place in various sectors and spheres of the economy and there are definitely areas where progress is being made, such as in the financial sector and agriculture.

"There are a number of areas of concern such as whether, given the problems of heavy industries like coal mining and steel, the government will really press ahead to reduce excess capacity. The other unanswered questions are whether, over the next two years or so, the government will rein in credit and do something about the balance sheets of the banks."

Oliver Rui, Zhongkun Group's chair in finance and director of the Shoushan Centre for Wealth Management at the China Europe International Business School in Shanghai, argues the real test to the Chinese economy will come when or if the US Federal Reserve raises interest rates again this year.

"I think the Federal Reserve's decision to postpone a rate rise has been a factor in the recent improved outlook. It has stabilized the renminbi and also perceptions and the general mood. Expectations are important at this stage.

"Once they start to increase rates the big question will be how the market will react. That will be a crucial time for the economy this year."

Miranda Carr, head of thematic research at Haitong, the China-based investment bank, says first-quarter growth should not be dismissed as being a result of a debt-fueled boost to the property sector.

She says it comes at the end of a 15 percent fall in the total amount of floorspace being developed in the property sector in each of the two previous years, which she describes as having been dire for the economy.

"It (property) generates construction activity, consumption in terms of decoration and household goods creates a wealth effect in terms of prices going up, and it also encourages capital coming back into the country instead of going out. It is perhaps the biggest factor in the recent stabilization of the economy."


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