China: Economy on Solid Ground

China: Economy on Solid Ground

China: Economy on Solid Ground

China’s recent economic moderation is a natural consequence of its economic restructuring, and the country’s solid growth momentum remains uninterrupted in the longer term, Asian Development Bank Chief Economist Yasuyuki Sawada said on May 7.

China is doing the right things to maintain financial stability and control cross-border capital flows, Sawada told China Daily in an exclusive interview on the sidelines of the bank’s annual meeting.

China’s year-on-year GDP growth fell to 6.9 percent in 2015, dropping below 7 percent for the first time since 1991, and it dipped further to 6.7 percent last year. The country is rebalancing its economy from external, export-driven and manufacturing production-based, to more internal, consumption-based, and it is shifting its focus from the manufacturing to nonmanufacturing sectors, which has contributed to the moderation in recent years, Sawada said.

The country has set a GDP growth target of about 6.5 percent this year, and with first-quarter growth picking up to 6.9 percent, it has already laid a solid foundation for the whole-year goal. The Asian Development Bank forecast recently that China’s growth could be 6.5 percent this year. ”That’s really high.,” Sawada said. “China’s long-term growth momentum will continue.”

China has made the right adjustments to contain financial risks and prevent massive capital outflows, he said.

Since the second half of last year, China’s monetary regulatory bodies have taken many steps to strengthen management of the financial sectors, with rules tightened and a number of institutions and individuals punished for irregularities in the financial markets. The currency regulator, meanwhile, has implemented capital outflow rules more strictly to keep capital movement from jeopardizing the country’s financial order.

“China has made financial stability a top priority,” Sawada said. He ruled out the possibility of the country encountering any financial crisis despite the rise in debt in recent years.

China has worked strenuously to cut excess production capacity, reduce businesses’ leverage and debt ratios and trim local government debt.” We don’t see any real sign of a (financial) crisis coming (in China), although we observe excess capacity in some sectors, such as coal and steel, and we’ve also seen rising indebtedness both in the corporate sector and households.”

For a rapidly developing country like China, he said, it is natural for the corporate sector and households to accumulate debt. “Indebtedness itself is not necessarily harmful. We don’t see any sign of China facing a big risk,” he said.

The Asian Development Bank’s annual meeting closed on May 7 with the bank vowing to increase lending capacity for infrastructure investment in Asia and cooperate with other development financing institutions, such as the China-led Asia Infrastructure Investment Bank, to better meet the financing needs of Asia and other regions.

Developing Asia and the Pacific will need more than $22.6 trillion for infrastructure construction through 2030, or $1.5 trillion per year, to maintain growth momentum, according to a recent report by the bank. “We should fill the financing gap using both private and public resources” through public private partnership programs, said Takehiko Nakao, Asian Development Bank president, on May 7.

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S. Jack Heffernan Ph.D. Funds Manager at HEFFX holds a Ph.D. in Economics and brings with him over 25 years of trading experience in Asia and hands on experience in Venture Capital, he has been involved in several start ups that have seen market capitalization over $500m and 1 that reach a peak market cap of $15b. He has managed and overseen start ups in Mining, Shipping, Technology and Financial Services.

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