Main­land set for qual­ity growth

China Daily (Hong Kong) - - BUSINESS - By EVE­LYN YU in Hong Kong eve­lyn@chi­nadai­lyhk.com

The Chi­nese main­land econ­omy will see “slower but higher qual­ity growth” in the sec­ond half of this year, In­dus­trial and Com­mer­cial Bank of China In­ter­na­tional said, re­tain­ing its 6.7 per­cent full-year pre­dic­tion for GDP growth.

In the first quar­ter of this year eco­nomic ex­pan­sion hit an 18-month high of 6.9 per­cent year-on-year. Cheng Shi, chief econ­o­mist of ICBC In­ter­na­tional, noted the re­bound was mainly driven by the fis­cal, mon­e­tary and ex­change-rate eas­ing ex­pan­sion in the fourth quar­ter of year 2015; this boost is not ex­pected to con­tinue be­yond the sec­ond quar­ter of this year.

Fi­nan­cial tight­en­ing moves such as delever­ag­ing should lead to a pull-back in the sec­ond half. But deeper sup­ply­side re­form and im­proved con­sump­tion — with in­ter­nal con­sump­tion be­ing the main growth driver amid a weak global re­cov­ery — will lead to higher qual­ity growth, Cheng said at a me­dia brief­ing on Mon­day.

He be­lieved the yuan would sta­bi­lize and there was lit­tle chance the cur­rency would weaken be­yond 7 per US dol­lar. He es­ti­mated the yuan would ap­pre­ci­ated slightly, from 6.95 to 6.93.

Qiu Zhicheng, strate­gist at ICBC In­ter­na­tional, said the lender was pru­dently op­ti­mistic about the H-share mar­ket and bullish on the A-share mar­ket.

Hong Kong’s stock mar­ket was boosted by global cap­i­tal flows, but faced great pres­sure as the world’s ma­jor economies ad­justed mon­e­tary pol­icy, he com­mented.

Cheng agreed, say­ing down­siz­ing of the United States Fed­eral Re­serve’s bal­ance sheet would start gen­tly in the fourth quar­ter of this year and gain trac­tion in the fol­low­ing two years. He pre­dicted down­siz­ing of $600 bil­lion to $800 bil­lion over two years.

For the main­land mar­ket, to off­set the im­pact of ris­ing in­ter­est rates fol­lowed by a flurry of strin­gent fi­nan­cial reg­u­la­tions, Qiu pointed out the gov­ern­ment would in­tro­duce proac­tive fis­cal pol­icy, es­pe­cially af­ter the 19th Na­tional Congress of the Com­mu­nist Party of China which is due to be held later this year in Bei­jing.

per­cent

the full-year pre­dic­tion for GDP growth of the Chi­nese main­land econ­omy by ICBC In­ter­na­tional

He ex­pected H-shares to see a cor­rec­tion of 5 per­cent to 10 per­cent in the lat­ter half of this year. As the val­u­a­tion of the mid- and small­cap stocks in A-share mar­ket had dropped sig­nif­i­cantly, he es­ti­mated small-cap stocks would rally 10 per­cent while big-cap stocks would rise about 5 per­cent in this pe­riod.

The big­gest main­land com­mer­cial bank bet on large fi­nan­cial en­ter­prises, which would ben­e­fit from delever­ag­ing, and an in­fra­struc­ture sec­tor which would ben­e­fit from a proac­tive fis­cal pol­icy.

The Bond Con­nect pro­gram kicked off last Mon­day with more than 7 bil­lion yuan ($1.02 bil­lion) traded by for­eign in­vestors on the first day.

ICBC said the scheme was a mile­stone to­wards main­land bonds be­ing in­cluded in Mor­gan Stan­ley Cap­i­tal In­ter­na­tional in­dices, but added the strong mo­men­tum of the first day was hard to main­tain.

As for the much-dis­cussed south­ward flow, the bank said the time­frame de­pended on north­bound flows and gov­ern­ment reg­u­la­tions on cap­i­tal out­flow, which were un­likely to change in the short term given the pre­vail­ing fac­tors.

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