6 Mar 2014
Flash: Head of China government think-tank cautious on the economy - Nomura
FXStreet (Bali) - Li Wei, Head of the government think-tank in China, offered a more cautious picture than the NPC statement yesterday, notes Zhiwei Zhang, Economist at Nomura.
Key Quotes
"Li Wei, the head of the State Council's Development and Research Center, penned an article in Wednesday's China Security Journal. The article sends several interesting messages that might not be found in the official statements from the NPC."
1) He says GDP growth is likely to be “slightly higher than 7%” in 2014, which differs from the official target of 7.5% revealed today by Premier Li Keqiang at the NPC. We take this as a message that some in policy circles may view the economic outlook less optimistically than the official target suggests.
2) He highlights four risks in the economy: misallocation of capital and rising interest rates, risks in the property market, overcapacity, and a decline of export competitiveness. In particular, he argues “third- and fourth-tier cities face an oversupply problem, some cities are starting to show signs of property price declines and a bursting of the property bubble” and that “this has become the most unpredictable risk for economic stability”.
3) He believes the contribution of investment to GDP will fall slightly in 2014. In our opinion, this implies that he does not expect another round of fiscal stimulus.
"We fully agree with Li Wei's assessment of the risks, particularly his view on the property market. We regard a sharp decline in property investment as the top risk to China's economy in 2014 and 2015. We also believe the slowing pace of urbanisation will exacerbate the oversupply problem in the property sector."
Key Quotes
"Li Wei, the head of the State Council's Development and Research Center, penned an article in Wednesday's China Security Journal. The article sends several interesting messages that might not be found in the official statements from the NPC."
1) He says GDP growth is likely to be “slightly higher than 7%” in 2014, which differs from the official target of 7.5% revealed today by Premier Li Keqiang at the NPC. We take this as a message that some in policy circles may view the economic outlook less optimistically than the official target suggests.
2) He highlights four risks in the economy: misallocation of capital and rising interest rates, risks in the property market, overcapacity, and a decline of export competitiveness. In particular, he argues “third- and fourth-tier cities face an oversupply problem, some cities are starting to show signs of property price declines and a bursting of the property bubble” and that “this has become the most unpredictable risk for economic stability”.
3) He believes the contribution of investment to GDP will fall slightly in 2014. In our opinion, this implies that he does not expect another round of fiscal stimulus.
"We fully agree with Li Wei's assessment of the risks, particularly his view on the property market. We regard a sharp decline in property investment as the top risk to China's economy in 2014 and 2015. We also believe the slowing pace of urbanisation will exacerbate the oversupply problem in the property sector."