Is China entering a new cycle of economic growth?

Source:Global Times Published: 2017/9/4 22:08:40

Illustration: Luo Xuan/GT



Editor's Note:
 

Talk of a new cycle of economic growth in China surfaced earlier this year as various indicators showed signs of recovery. This then evolved into a heated debate over the prospects for the Chinese economy following the release of better-than-expected GDP growth data of 6.9 percent for the first half of the year. Here are some of the viewpoints expressed by economists about it.

Ren Zeping, chief economist with Founder Securities

More and more macroeconomic and microeconomic indicators have shown signs of a new expansion cycle recently: the rising industrial concentration, the healing corporate balance sheets, the improving capacity utilization ratio, the surging commodity prices, the increasing financing demand from companies, the strengthening yuan and the stronger stock market performance.

There are two main reasons why the new cycle theory has caused such heated discussion. First, after more than six years of economic slowdown, people are used to conventional thinking while ignoring the huge changes at the micro-level and the cycle of economic growth. Second, most of those who are skeptical about the new cycle are stock market bears. But as the minority group, we are optimistic about the economy this year and are market bulls. The market is the only criterion to verify the logic of any given view. So let's just leave the discussion to the market, the fairest referee.

Wang Hanfeng, chief strategist with CICC

The current market environment is, to a certain extent, similar to that in 2003. China is expected to see the beginning of a new cycle of economic growth after the adjustment from 2010 to 2015. That is because China's economic situation between 2010 and 2015 was similar to the situation from 1997 to 2001, in that both periods saw continuous downturn and adjustment. The factors also include rises in inflation and corporate earnings; recovery in overseas markets; and gradual release of reform measures for the medium and long term.

Liu Yuhui, chief economist with Tianfeng Securities

Since 2011, whenever the Chinese economy showed signs of recovery, there were always people asserting that the economy would enter a new cycle. Those people are either ignorant or speculative. Over the past decade, the momentum of China's economic cycle came entirely from "real estate and infrastructure," which are funded by debt fundamentally, in the form of liabilities of developers, residents and the government. In this sense, there is no such a thing as a new cycle at all.

Li Xunlei, chief economist with Zhongtai Securities

It is hard to believe that a new economic cycle will start when potential economic growth is on the decline. When deleveraging, destocking, capacity elimination and other supply-side structural reform tasks haven't been accomplished and the market clearing hasn't been finished, it is too early to talk about a new cycle. What we should pay attention to is that monetary supply has become moderate and there is an excessive quantity of assets in the market, which are signs of a peaking financial cycle.

Zhang Ming, chief economist with Ping An Securities

Accelerated major structural reforms can not only guide capital flows into the real economy and reduce financial risks by improving the investment return ratio, but can also lead to the beginning of a new cycle in the Chinese economy by boosting productivity. However, it is too early to assert the arrival of a new cycle before the reforms speed up.

The current mismatch between the real economy and financial market - as reflected by overcapacity, high leverage at State-owned enterprises and local governments, and potential risks from shadow banking - is partly because there hasn't yet been a complete clearing of the market, which is one of the reasons why the new cycle hasn't come yet.

One of the prerequisites for a new cycle is the clearing of the old model. Only when insolvent companies or financial institutions repair their balance sheets and micro entities can face the correct market incentives can the new wave of growth be expected to come.

Deng Haiqing, chief economist with JZ Securities

The Chinese cycle should be equal to the reform. The cycle mainly refers to the expansion of total demand, while the reform is more about the supply.

At the current stage, the so-called new cycle has actually already begun. If we look at the PPI data and commodities price trend, a recovery has been recorded for a year and a half. So it is too late for us to discuss whether or not China has entered a new cycle.

Cai Hao, a researcher at the Research Institute of Hengfeng Bank

Throughout global economic history, any economic cycle starts with demand recovery, improving economic data and continuous increases in inflation (both CPI and PPI). The current supply-side structural reform hasn't caused the improvement of overall demand, and the CPI remains at a low level and economic performance is not steady.

According to the economic performance in the first half of this year, the growth momentum is still based on real estate and fiscal spending.

Therefore, the current economic situation is more like the so-called L-shaped growth, and is definitely not the beginning of a new cycle.



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