Econ­omy ‘will be bol­stered by driv­ers such as con­sump­tion in smaller cities’

China Daily (Hong Kong) - - BUSINESS - By LI XIANG lix­i­ang@chi­nadaily.com.cn

China’s econ­omy may grow slightly slower in the sec­ond half of the year but will re­main ro­bust sup­ported by im­proved ex­ter­nal de­mand and do­mes­tic pri­vate in­vest­ment, a lead­ing econ­o­mist at Mor­gan Stan­ley said on Mon­day.

China’s GDP rose 6.9 per­cent year-on-year in the sec­ond quar­ter, un­changed from the pre­vi­ous quar­ter, of­fi­cial data showed. The growth beat a mar­ket con­sen­sus of 6.8 per­cent and was well above the gov­ern­ment’s full-year tar­get of “around 6.5 per­cent”.

Robin Xing, chief China econ­o­mist at Mor­gan Stan­ley Asia Ltd, said the ro­bust growth in the first half of the year was mainly bol­stered by the ex­port re­cov­ery and the re­bound of pri­vate in­vest­ment in the ser­vice and man­u­fac­tur­ing sec­tors.

Xing pre­dicted that the growth of man­u­fac­tur­ing in­vest­ment would re­bound to 7.8 per­cent this year, up from 4.2 per­cent in 2016. How­ever, growth of in­vest­ment by State-owned en­ter­prises will likely slow to 13 per­cent while prop­erty in­vest­ment growth will drop to 5 per­cent.

In the long run, Mor­gan Stan­ley main­tained an op­ti­mistic out­look on the Chi­nese econ­omy as growth will be bol­stered by new driv­ers such as con­sump­tion in smaller cities. It es­ti­mated that do­mes­tic con­sump­tion will rise to $9.7 tril­lion by 2030 from $4.4 tril­lion in 2016, with two-thirds of the con­sump­tion growth from third and fourth-tier cities.

In the mean­time, the US in­vest­ment bank be­lieved that China is ca­pa­ble of avoid­ing a fi­nan­cial cri­sis de­spite the rise in the coun­try’s debt level, which stood at 278 per­cent of GDP last year, ac­cord­ing to its es­ti­mates.

“We are op­ti­mistic due to the gov­ern­ment’s de­ter­mi­na­tion to push delever­ag­ing and con­trol the debt level in an orderly and grad­ual man­ner to avoid liq­uid­ity risks,” Xing said.

Xing added that pol­i­cy­mak­ers will main­tain a hawk­ish out­look on fi­nan­cial reg­u­la­tion and keep mon­e­tary con­di­tions rel­a­tively tight to slow broad credit growth.

The stronger-than-ex­pected GDP growth in the sec­ond quar­ter has prompted some econ­o­mists to raise their growth fore­casts for China.

Zhao Yang, chief China econ­o­mist at No­mura Se­cu­ri­ties, raised his fore­cast for the third quar­ter to 6.8 per­cent from 6.6 per­cent and his an­nual fore­cast to 6.8 per­cent from 6.7 per­cent.

But Zhao warned about uncer­tainty over ex­ter­nal de­mand, given the ap­pre­ci­a­tion of the ren­minbi in the first half of the year and ris­ing global geopo­lit­i­cal risks.

Mor­gan Stan­ley’s Xing held sim­i­lar views, be­liev­ing that ma­jor risk that could threaten China’s growth is the de­te­ri­o­ra­tion of the ex­ter­nal en­vi­ron­ment and ris­ing global trade fric­tions.

Robin Xing, chief China econ­o­mist at Mor­gan Stan­ley Asia Ltd

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