China: Growth to moderate as policy turns less accommodative – Commerzbank

Analyst, Hao Zhou at Commerzbank, expects China’s economy to slow to 6.5% in 2017, from an estimation of 6.7% in 2016. 

Key Quotes

“The growth moderation is largely due to less accommodative policies after the property frenzy this year. In general, China’s growth picture looks better than market expected thanks to property rally. However, there emerged some early warning signals of asset bubbles, especially as the property price growth hit double digit in Q3. In the meantime, massive speculation is seen across metal, raw materials and soft commodity futures market.” 

“All these raised the concerns among the Chinese authorities, and the overall policy tone has turned less accommodative since September. The cost of short-term funds has started to rise, and property policies have been tightened in the big cities. We believe that the “risk control” policy tone will continue in the coming quarters, and will add downward pressure on growth as a result.” 

“Inflation will be under check, given the relatively soft growth outlook.  We forecast that China’s CPI inflation will be 2.0% in 2017, from 1.8-1.9% this year.”

“The “Trump” uncertainty 

Obviously, one of the biggest uncertainties facing China’s economy is from the US side. While we doubt that Mr. Trump will fully deliver what he proposed during his campaign, China’s trade growth still faces significant downside risks given the rising protectionism globally. 

That said, we won’t have a stellar growth profile next year, but a hard landing can be avoided as the Chinese authorities still manage the economy effectively and China holds a number of policy instruments to boost the growth when needed. Keep in mind it is politically important for China to maintain its growth at above 6.5% as the19th National Party Congress will be held next year. The new Politburo Standing Committee (top China leadership panel) will be formed after this congress.”    

“CNY will weaken further

Further depreciation in CNY is inevitable as capital outflows continue, underscored by USD strength as the Fed is likely to hike rates further in the coming year. In the meantime, a weaker currency is needed to help lift up the external trade. We think that USD-CNY will reach 7.15 by the end of 2017.”