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Financial institutions upgrade China’s growth predictions

Updated: Sep 24,2016 12:56 PM

Financial institutions, including UK’s Standard Chartered Bank, Commerzbank of Germany, and Hang Seng Bank of Hong Kong, raised expectations for China’s economic growth in their reports released in September. According to the reports, better performance of China’s August economic indicators showed that policies to maintain stable growth are taking effect, and power to drive the economy is improving.

-Standard Chartered Bank: GDP in the second half of the year is expected to grow 6.9 percent, and annual economic growth to reach 6.8 percent.

According to Ding Shuang, head of Greater China economic research at Standard Chartered, economic performance in August was better than in July. Import and export data beat expectations, industrial added value maintained a steady rise, investment statistics from the month also got better, which mean economic growth remained stable and risks of a hard landing are relatively low, Ding said.

Judging from the support of economic growth, consumption as China’s economic stabilizer is playing a more important role. In the second half of the year, net exports will also make contributions to economic growth. Meanwhile, growth of the service industry and industrial added value will remain stable and positive fiscal policy will continue to take effect.

-Barclays Capital: China’s economic indicators generally getting better, raising expectations of GDP growth rate for the second half of the year.

China’s economic conditions in August turned out better than the previous month, with all indicators improving, according to a report published by Chang Jian, chief China economist at Barclays Capital, and Zhou Yingke, assistant vice president at Barclays Investment Bank.

Industrial output and retail sales continue to get better, fixed asset investment growth starts to stabilize, PMI and import data are better than expected. Overall economic growth momentum from the second quarter to the fourth has been improving markedly.

Therefore, Barclays raised expected GDP growth rates in the third and fourth quarters to 6.3 percent and 6.1 percent, respectively. Predictions for GDP growth rate in 2017 were raised to 6.2 percent.

-Commerzbank: China’s PMI performance in August reverses market confidence; expected economic growth to rise from 6.3 percent to 6.7 percent this year.

Although some enterprises have been shut down for backward production capacity and technology amid China’s industrial restructuring, overall manufacturing activities are rebounding, with the official PMI reaching 50.4 in August, the highest level since October 2014, said Commerzbank economist Zhou Hao.

Data showed obvious increases in power generation, steel production, and commodity prices, including steel and coal. It indicates economic growth forces in China are improving. That’s why Commerzbank raises its prediction for China’s economic growth in 2016 to 6.7 percent.

-Hang Seng Bank: Chinese mainland economy maintains steady growth, which is expected to grow 6.7 percent in the third quarter.

As policies to stabilize growth start to kick in, growth of fixed-asset investment, retail sales and industrial output in August beat market expectations and was faster than in July, said Yao Shaohua, senior economist at Hang Seng Bank.

Meanwhile, private investment in August recovered after declining for two consecutive months due to overcapacity-cutting measures amid supply-side reform. Such measures have underpinned the recovery of commodity prices and improved corporate profits, said Yao.

There is little possibility for a continued economic rebound, but the economy in the mainland will maintain a steady growth with the support of a proactive fiscal policy and slightly eased monetary policy, said the economist. Economic growth in the third quarter is expected to reach 6.7 percent, said the bank, which maintains its GDP growth forecast of 6.7 percent in 2016.

-Goldman Sachs, Numero Securities: Prospect of China’s economy is upbeat, upgrading mainland equities to overweight

Timothy Moe, chief Asia equity strategist at Goldman Sachs, said on Sept 13: “Even though the longer-term structural concerns, with respect to credit extension and overcapacity and so forth, are still there and are very worrisome, in the near term, we think China is a good and continuing catch-up trade. On a cyclical basis, the economy will actually begin to strengthen in the fourth quarter because of recently announced policy easing measures. Corporate earnings are beginning to stabilize.” Goldman upgraded Chinese equities from market-weight to overweight and raised its MSCI China index target from 60.5 to 70, implying an uptick of about 9 percent from current levels.

Numero Securities issued a note on Sept 15 to upgrade Chinese equities from market-weight in August to overweight. Macro economic data will continue to improve with the capital flow via Shanghai-Hong Kong Stock Connect, and concerns over corporate defaults or non-performing loans are receding. The market is positive on renminbi, credit default, SOE reforms, capacity reduction, and economic rebalancing, and on China’s profit outlook, which continues to improve.