Has Chinese growth stabilised?

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Credit Suisse is out today with a note slightly upgrading its Chinese growth forecasts and arguing the bottom is in:

  • We believe that the Chinese economy has bottomed. The upward momentum may not be strong, but stabilisation itself would be good news, given how bearish the market is about China’s outlook.
  • Credit Suisse has developed a forward looking momentum index, based on Premier Li Keqiang’s doctrine. The CS Li Keqiang Momentum Index shows that the economy has bottomed and the commercial activities improved recently. We believe improved growth momentum can last, as: (1) housing policy is easing and sales are robust; (2) local governments are investing again; and (3) the export outlook has brightened, slightly.
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  • But the core issue remains unaddressed – private investment is still missing. There is a high hope that the third plenary session of the party congress could yield some concrete reform initiatives. We do expect some policy broad frames to be revealed, but do not think concrete and actionable policies are likely.
  • We call for growth stabilising, without much upside momentum. We raise our 2013E GDP growth forecast to 7.6% from 7.4%, and 2014E to 7.7% from 7.6%.

Astute readers will already have noticed that this mix of growth is nothing new. Indeed it is quite painfully old, with housing construction, local government investment and exports driving the rebound. I therefore agree it is temporary and we won’t see something more sustainable until we also see greater structural reform. On that front, credit statistics have been more encouraging (that is, weak) and also suggest any immediate upside faces stiff headwinds.

About the author
David Llewellyn-Smith is Chief Strategist at the MB Fund and MB Super. David is the founding publisher and editor of MacroBusiness and was the founding publisher and global economy editor of The Diplomat, the Asia Pacific’s leading geo-politics and economics portal. He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.