Daily Management Review

Global uncertainties, excess capacity put the Chinese economy in jeopardy


02/28/2017


China's economy in 2017 will be facing risks associated with uncertainty in the world and an excess of production capacity in the country, reported Bureau of Statistics of China on Tuesday.



GDP of the world's second-largest economy grew 6.7 percent in 2016, and slowed down compared to 2015. It stopped around in the middle of the government’s target range of 6.5-7 percent.

However, despite the fact that Chinese exports is finally showing signs of recovery after years of decline, forecast for global demand growth is still overshadowed by concerns about trade protectionism of the US.

"The international situation is still complex and volatile, there is a considerable uncertainty and discrepancies between internal overcapacity and structural modernization," - said Deputy Head of the National Bureau of Statistics on the agency's website.

He pointed to problems associated with deep restructuring of the global economy, weak global trade and trend towards de-globalization.

China has significantly exceeded its targets reducing scale of excess production capacity in the past year by closing a number of inefficient steel mills and coal mines.

Beijing intends to continue the cuts in 2017, but analysts said that many outdated facilities are being replaced by more economical and environmentally friendly. This hardly helps to reduce excess capacity and threats with over-saturation.

Maintaining a moderate inflation would be beneficial for the Chinese economy, as price pressures throughout the world are returning to growth after several years of weakness.

Consumer price inflation in China has accelerated to 2.5 percent in January on an annual basis, reaching a monthly peak since May 2014. At that, inflation of manufacturers’ prices rose to 6.9 percent. This is the highest since August 2011, as the construction boom raised demand for raw materials, such as steel or cement.

Analysts are rather pessimistic the Chinese economy in the future. They are based on the fact that China's bank assets and, as a result, liabilities, have increased by a whopping $ 15 trillion since 2013.

As a result, total assets exceeded $ 24 trillion. In other words, China's financial balance now is 50% higher than total assets of the world's central banks put together.

Today even the main central banks are openly admitting that steady growth of China's debt is a major risk factor for global financial stability.

For example, the New York Fed in a recent report highlighted some of China's debt problems.

Here are some of them:

•    Half of the debt, created worldwide since 2005, accounts for debt in China.

•    The country's share in total global lending is almost 25%, while it was only 5% ten years ago. The credit boom in China has reached a point when the country is going through a financial stress that can affect international markets, taking into account size of the Chinese economy.

•    Non-fiscal debt in China has grown from about $ 3 trillion at the end of 2005 to nearly $ 22 trillion. Banking system assets have increased six-fold over the same period, today they account for 300% of GDP.

Only in 2016, volume of outstanding loans climbed up by more than $ 3 trillion, given that the growth rate is about twice higher than the nominal GDP.

As a result, we can expect any another financial crisis, or a sluggish economic growth below average. 

source: reuters.com






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