There is a growing feeling that the priorities of the Chinese government have moved to a more sustainable economic agenda and away from growth at all costs. The Chinese authorities are no longer ignoring the financial risks that come with years of credit growth and have set an economic growth target of 6.5% for 2018.
Officially the Chinese economy grew by 6.8% year-on-year to the end of March. About 80% of this growth in GDP in Q1 was down to domestic consumption suggesting that China’s objective of rebalancing their economy from traditional industries towards retail and service led industries is working. Independent analysts who question the reliability of China’s official growth figures believe the real growth rate is more likely to be 4.5% but still consider the Chinese economy to be in good health.
Since becoming President in 2013, Xi Jinping has consistently emphasised the sustainability of growth over the pace of growth. The acceleration of reform has been marked. President Jinping’s anti-corruption drive has improved China’s corporate governance particularly in China’s vast state-owned enterprises. The financial sector has faced challenges over debt levels and shadow banking but has improved through proactive credit limits and regulatory tightening. Chinese debt levels are very high, but the risk of an inter-bank crisis has reduced significantly.
The Beijing authorities are taking action to slowly but surely reduce debt levels in their traditional industrialised corporations in the steel, coal, chemical and manufacturing sectors as well as in regional government borrowing. Chinese regional banks are being refinanced.
The Chinese housing market has been cooling and so effecting labour and key sectors linked to house building. Control over credit growth has stabilised the market through loan-to- value and loan- to- income limits as well as a restriction in the number of mortgages one individual can have.
A big factor in China’s recent expansion has been a rebound in commodity prices. China is the world’s biggest producer of copper, iron ore and aluminium.
Analysts see signs that China’s economy has changed with management confidence rising across a range of indicators. There is an expectation that capital expenditure will rise this year along with the drive to innovate and upgrade domestic supply chains.
While growth is expected to continue it will be slower but more stable.