Dr Yu Yongding: China at a turning point? | Notenstein La Roche Private Bank: "Notenstein La Roche Gespräch 03 March 2016
Very interesting viewpoint on China from a Chinese economist, highlighting indications of a slower pace of Chinese growth than expected - a range of 4-5%, significantly under the generally accepted 6.5%+.
Despite that outlook, Notenstein believes the markets have now already priced it in - although I am not sure many realize that they have and would expect continued volatility driven by China numbers.
"In this respect, an extraordinary change is that China’s working age population has been shrinking by more than 3 million each year since 2012. Very soon, China’s labour supply will start to fall. With a growth rate of labour productivity just in excess of 6.5 percent and a slightly negative growth rate of labour supply, China’s long-term growth rate is unlikely to be significantly higher than 6.5 percent."
"According to Xinhua New Agency, China’s home ownership exceeds 100 percent, dwarfing America’s figure of less than 70 percent, let alone Germany’s 40 percent. Clearly, China has already invested too much in real estate."
"Though China’s CPI is still in positive
territory, it is beyond doubt that China is currently in
the grip of deflation. There are two spirals working on the
Chinese economy: an overcapacity-deflation spiral and a
debt-deflation spiral."
"China needs
urgently to usher in a new but better designed stimulus
package, characterised by central government financed infrastructure
investments. As long as the government can
implement the right policy mix, the economy can rebound
and return to a slower but still inspiring growth path."
"In the short run, the RMB will devalue, but no one can
say to what extent. In my view, the PBOC should let the
RMB find its equilibrium value as soon as possible. In other
words, it should stop intervening in the foreign exchange
market."
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