We forecast real GDP growth to continue to slow to 6.3% in 2016 and 5.3% in 2017, versus 6.9% in 2015. As the economy continues to work through its significant overcapacity issues, job losses in sectors ranging from coal mining to steel production could be significant. Meanwhile, trade accounts will continue to underperform versus previous years, with both exports and imports set to contract for a second straight year.
Economic reforms have been ponderous over recent quarters, but the Chinese central government appears to be shifting its focus towards speeding up reforms, and plans to reduce overcapacity, improve the efficiency of state-owned enterprises, and encourage private investment are steps in the right direction. However, progress is unlikely to be smooth over the coming years due to poli tical and social considerations . Should the Communist Party of China (CPC) continue to drag its feet on badly-needed SOE reforms and the curbing of overcapacity in the industrial sectors, the economy could be relegated to a multi-year stagnation that could prove difficult to escape.
The Chinese yuan is set to weaken gradually against the US dollar and its CFETS basket over the coming months and we maintain our 2016 and 2017 year-end forecasts of CNY6.800/USD and CNY7.100/USD, respectively. Despite its CFETS basket losing approximately 4% of its value since the start of 2016, the CNY is still strong in real effective exchange rate terms. We believe that the yuan will be undermined by portfolio outflows, the payment of external debt obligations, and acquisition of foreign assets by Chinese corporates.
The PBoC's continued support of the Chinese yuan is contrary to its monetary easing operations aimed at shoring up economic activity, and we expect the central bank to relent on the former. However, there exists the possibility that monetary conditions become more acute, which, in tandem with the economy's extensive debt overhang, could lead to a rapid rise in bad debts, cascading defaults, and a significant downturn in economic growth.
|Real GDP growth, % y-o-y||7.4||6.9||6.3||5.9|
|Nominal GDP, USDbn||10,655.0||11,341.1||11,608.0||12,017.2|
|Consumer price inflation, % y-o-y, eop||1.5||1.6||2.0||2.5|
|Exchange rate CNY/USD, eop||6.21||6.49||6.80||7.10|
|Budget balance, % of GDP||-2.0||-2.4||-3.0||-3.1|
|Current account balance, % of GDP||2.6||2.9||2.7||2.6|
Assess your risk exposure in China with our 100% independent forecasts assessing the pace and stability of this key market. Backed by trusted data from BMI Research's 52 million data point economic forecast model, this report will allow you to measure political, economic, business environment and operational risks in China with confidence.
Your subscription service includes:
- Delivery of the report in print and PDF
- Online access for 12 months
- The functionality to translate your online report into your choice of 10 languages - Arabic, Chinese, French, German, Italian, Japanese, Korean, Portuguese, Russian and Spanish
- The ability to export data and graphs from the online report directly into your workflow
- The support of a dedicated Account Manager to answer any questions you might have about your subscription
- Access to our team of leading analysts who will be happy to answer any questions you might have about the data and forecasts included in this report