HSBC sees steady, gradual recovery

The Chinese economy is on track to grow “around 5 percent” this year as per the government’s target, supported in particular by robust infrastructure and manufacturing investment, and consumer spending is expected to pick up as well over the course of the year, said HSBC Chief Asia Economist Fred Neumann.

In an exclusive interview with China Daily, Neumann said: “The data for the beginning of the year have been encouraging ... China’s economy is likely to deliver a steady, gradual recovery. The policy setting is mildly supportive of a further pick-up in growth, and the drag from a deflating property sector should gradually fade over time.”

The economist said he expects the Chinese government to roll out measures incrementally to further boost economic recovery, focusing on specific areas like the housing market, rather than opt for a broadbased stimulus.

“Stimulating housing demand and supporting developer finances — these remain two important approaches to stabilizing the property sector. Over time, improvement in sentiment in the property market should also support consumption,” he said.

He said financial markets may be underestimating the degree of policy support that has already come through over the past year, including fiscal easing and targeted support measures for the housing market.

“We expect these measures to gain increasing traction over the course of this year. If needed, the government also retains sufficient room to ease fiscal policy further to support demand and achieve its growth target,” he said.

In the past few months, economic recovery momentum has grown stronger. Data from the National Bureau of Statistics showed on Tuesday that China’s GDP expanded by 5.3 percent year-on-year to 29.63 trillion yuan ($4.09 trillion) in the first quarter, after a 5.2 percent rise in the fourth quarter of last year. On a quarter-on-quarter basis, China’s GDP grew by 1.6 percent in the first quarter.

Neumann said deflation pressures in China are underpinned by a short-term decline in demand relative to the supply potential of the economy and “appear more cyclical than structural”.

“Once demand recovers, especially when the real estate market is starting to improve, price pressures more broadly should normalize as well,” he said, adding China has a lot of pent-up demand.

For example, the household savings rate is quite high in China and, over time, a fall in the savings rate should boost spending, especially as the property sector stabilizes, he said.

“It’s important to remember that the adjustment in the real estate sector affects household confidence. Therefore, any housing market improvement will translate into accelerating consumption as well.”

He also said “the worst of the cycle is likely behind us” for the property market, although a quick fix is not in sight.

“It may take a while before the property market fully recovers. At the same time, the structure of China’s economy is also changing, becoming less dependent on real estate so that the challenges in the sector matter less and less over time for overall economic growth.”

Fred Neumann