The report examines recent developments and the outlook for the Chinese economy as concerns about mounting corporate debt and overheating property prices force the government to scale back stimulus.
Real GDP growth has fallen steadily in recent years, eroded by slower growth in private investment and weak external demand, which has prompted the government to support the economy through public investment and easier monetary policy. Growth is expected to slow from 6.7% in 2016 to 6.1% in 2018 on weaker investment growth as concerns about mounting corporate debt and overheating property prices force the government to scale back stimulus. Real GDP
The current account surplus is expected to decline from 2.1% of GDP in 2016 to 1.0% in 2017, mainly as a consequence of the secular decline in exports, but then recover in 2018 to 1.3% as imports related to the investment programme decrease. After weakening around 7% against a trade weighted basket of currencies in 2016, we expect the authorities to maintain broad stability of CNY in 2017-18. The stable currency should help drawdowns of international reserves to moderate and we expect reserves to remain sizable at over 15 months of import cover. Current Account (% of GDP)
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In 2016, we expect the budget deficit to widen mainly owing to lower government revenue as the authorities implement new tax cutswhich will low the cost of doing business.
In 2017, a focus on pro-consumption measures, such as social security spending, is expected to expand the deficit further.
In 2017-18, we anticipate a pull-back in public investments to address mounting levels of debt (public debt is expected to grow to 51.2% of GDP by 2018 from 45.8% in 2016).
Deposit growth is expected to fallon slower GDP growth and capital outflows while credit growth remains high, leading to tighter liquidity.
Credit growth is expected to cool but remain high in 2017-18 due to tighter monetary policy, a slowdown in public investment and liquidity constraints.
Profitability is likely to come under pressure on rising NPLs as the economy slows, but the authorities are expected to regulate shadow banking and capitalisation should remain relatively strong.
General Government Budget
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Banking Sector
Sources: People’s Bank of China (PBoC) and QNB Economics forecasts |
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