2015 Macroeconomic Themes in China
Transitioning From Investment-Driven to Consumption-Driven Economy
LUDAN LIU: As you might know, China's economy has historically very reliant on investment growth, which has been driving a lot of the inflationary pressure in the economy. And now the investment growth has been slowing down from at the peak over 20% to roughly 15% right now. That's why the GDP is slowing down as well. So for last year, the GDP has been 7.4%. So for this year, we expect it to be somewhere between seven and 7.2%. So the slowdown in the investment may reduce the pressure on the inflation. The CPI index, which we use for measuring inflation, was two percent last year. For this year, we expect to be around 1.5% to 1.7%. As you might know, central bank has been just taking on an easing path. And last November, it cut interest rates, it cut reserve requirement ratio. It's all because of the reduced inflationary pressure. That's creating a very favorable environment for investing for both bonds and stocks. So seven percent growth is still very nice growth rate. Together with the eased monetary policy, we expect it to be very good for the capital markets.
Easing to Combat Economic Slowdown
LIU: As the economy slows down, there are naturally concerns about whether there's going to be hard lending kind of scenario. Well, we don't think it's very likely. There's still tremendous amount of potential for growth for China, and the government has been pretty aggressive in spending on infrastructure when the growth slowdown is pretty obvious. So the infrastructure spending has been held at 20% right now as the fiscal policy to offset any potential speed-up and slowdown.
We have already seen the PBOC, the central bank, has cut interest rates for the depository rate, for the lending rates as well. Then we just had recently seen the PBOC cutting the required reserve ratio, which was at 20%, down to 19.5%. Along the way, the central bank will be also injecting liquidity into the money markets to bring down the short-term interest rates. They will also be embarking on a number of new measures to help boost the amount of money growth into the economy.
LIU: Shadow banking doesn't really carry as positive a meaning as it should be, because the loss of the shadow banking activities are really pretty valid. Companies that don't normally get loans from the banks can get financing through the so-called shadow banking channel. So it does serve valid purposes. The problem in the past has been lack of regulation. Now the regulators are realizing that, and more regulation is being enforced. We think the shadow banking system is very well under control.
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