Ex­perts weigh in on China’s eco­nomic slow­down

China Daily (Canada) - - SHANGHAI - By YU RAN in Shang­hai

yu­ran@chi­nadaily.com.cn

One of the ways to sta­bi­lize China’s cur­rent eco­nomic sit­u­a­tion would be to im­ple­ment a more proac­tive fis­cal pol­icy to help the mar­ket re­vive con­fi­dence, ac­cord­ing to HSBC econ­o­mists.

“China is fac­ing a more se­vere eco­nomic sit­u­a­tion in 2016 com­pared with the pre­vi­ous year, and it may suf­fer from de­fla­tion and down­ward spi­rals as a re­sult,” said Qu Hong­bin, co-head of Asian eco­nomic re­search at HSBC, who also sug­gested that the govern­ment should lower cor­po­rate taxes and fees, as well as ex­pand the deficit to ar­rest the eco­nomic slow­down.

“It is still pos­si­ble to ease the trend of de­flec­tion and sta­bi­lize the cur­rent eco­nomic sit­u­a­tion by re­duc­ing the in­ter­est rate and de­posit re­serve ra­tio, sup­port­ing mi­grant work­ers with lowrent hous­ing, and car­ry­ing out cer­tain in­fra­struc­ture projects. How­ever, de­pre­ci­a­tion shouldn’t be part of the pol­icy as it is not an ef­fi­cient method to re­sist de­fla­tion on the global scale,” added Qu.

The ren­minbi weak­ened by 1.5 per­cent against the US dol­lar in early Jan­uary, the largest weekly de­cline since Au­gust last year, while China’s for­eign ex­change re­serves fell to $3.33 tril­lion at the end of De­cem­ber, the low­est level in more than three years and down by $108 bil­lion from Novem­ber.

Speak­ing about the de­pre­ci­a­tion of the ren­minbi, HSBC chief econ­o­mist Stephen King pointed out that it was partly caused by the other coun­tries.

“Many coun­tries de­pre­ci­ate their cur­ren­cies to trans­fer eco­nomic prob­lems to other mar­kets. This is the case with the con­tin­u­ous slow­down of China’s econ­omy, which was a re­sult of the de­pre­ci­a­tion of other cur­ren­cies against the ren­minbi,” said King.

“Now, due to China’s slow­ing down, we are los­ing an in­vestor or con­sumer on the global scale, and this will lead to a fall in the prices of bulk com­modi­ties and in turn af­fect cer­tain newly emerg­ing mar­kets that ma­jor in th­ese com­modi­ties.”

Ac­cord­ing to David Bloom, global head of for­eign ex­change strat­egy of HSBC, the weak­en­ing of the Chi­nese cur­rency is a nat­u­ral con­se­quence of a slow­ing econ­omy, un­like in the West where the cur­rency is weak­ened due the de­lib­er­ate im­ple­men­ta­tion of poli­cies.

Bloom also em­pha­sized that what the mar­kets are largely wor­ried about is not the weak­ness of the ren­minbi, but the speed at which it is weak­en­ing.

“We’re look­ing for a slightly weaker ren­minbi of about 6.7 against the US dol­lar by the end of this year,” said Bloom.

Econ­o­mists have also made their fore­casts on the global equity mar­kets in de­vel­oped coun­tries, with King say­ing that the val­u­a­tion of the US mar­ket will be a bit ex­pen­sive and that it may be dif­fi­cult for US cor­po­ra­tions to main­tain rapid growth as in re­cent years.

HSBC’s as­set eval­u­a­tion and equity strat­egy teams be­lieve that Euro­pean eq­ui­ties are val­ued bet­ter than their US coun­ter­parts, and pre­dict that the Euro will as­cend to 1.20 against the dol­lar by the end of the year.

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