PIMCO sees 6% Chinese growth

And the numbers just keep falling. PIMCO is now forecasting 6% growth in China. From a fascinating report by PIMCO titled the “new neutral” it seems the big bond player has not entirely lost its intellectual leadership with the departure of Mohammad El-Erian:

The existence of a shadow banking system in China is now well-known, but only recently has the scale, scope, complexity and fragility of that system become apparent. As shown in Figure 2, by accepted estimates the amount of leverage in China’s shadow banking system has quadrupled in the past four years and now exceeds 10 trillion RMB (about 1.6 trillion US dollars). The view of the PIMCO Asia Pacific Portfolio Committee, supported by excellent analysis from our entering class of MBAs, is that policymakers in China will likely attempt to limit shadow banking over the next three to five years. While China clearly has the will and – with over 4 trillion dollars in foreign exchange reserves – the wallet to do so, the process, even if successful, is likely to be a headwind – perhaps material headwind – for China GDP growth over our secular horizon. Indeed, our consensus view is that it will be very difficult for China to grow at the about 7.5% rate that President Xi and Premier Li are aiming for. We think 6-6.5% is the better number over the next few years.

I agree and reckon that that rate of growth would still allow China to contain unemployment without having to perpetually risk making its debt and investment problems worse.

This is only a snippet from the report. It is worth reading for wider diagnosis of a new neutral in which global growth slowly improves but policy normalisation takes forever and returns on investment remain suppressed.

Read it in full here.