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16 Dec 2016

International Economy

No Sign of Economic Uptick in China amid Limited Stimulating Tools (Current Issue No. 2800)

The Chinese economy will likely remain listless next year where growth is projected to reach 6.4 percent, down from 2016's 6.7 percent estimate, in line with waning state investments and lower private consumption. The government has had to become quite innovative toward devising new measures to kick-start the economy in 2017 and to prevent untoward impacts on various sectors, especially the banking industry, which was hurt by the real estate stimulus earlier this year, as these measures would later elevate risk of a real estate bubble and higher household debt in China.

That being said, China's international trade seems to be regaining its footing as the year-end approaches, thanks to a depreciating Yuan and brighter prospects in the global economy, notably the US. These favorable conditions will probably help push China's export receipts to somewhere between 1.8-4.8 percent growth in 2017. When combined with commodity prices that should be improving, our shipments to China will likely see growth of around 1.6 percent. Opportunities will be particularly exciting for electronics, including electrical circuit boards that may pick up along with China's rebounding shipments of electrical appliances and electronics.

Nonetheless, KResearch holds the view that China has some stubborn structural problems stemming from inefficient resource allocation that could limit its future economic growth. Numerous arrangements showing such mismanagement include state enterprises' focus on investments into low-return projects and unpromising industries, and government attempts to apply quick fixes to its stuttering economy by introducing stimuli for industries that do not match economic restructuring goals. An important matter for China to mull right now is finding a balance between short-term reinforcement that will not likely cause any damage to the economy and fiscal status and reforms of the real economy to make it a genuine powerful driver of economic growth

International Economy