Markets & Economy
Is China headed for a hard landing?
July 08, 2015
Noni Robinson: Qian, a lot of investors fear a hard landing in China. Can you talk about your outlook on that?
Qian Wang: What we have seen in China growth rate, I mean, the first quarter data was not good. The sequential growth rate was 5.3% quarter-on-quarter. That's probably the weakest in four or five years. But I think, recently, what we have seen [is that] the gross momentum has been stabilizing especially, I think, the policy stimulus the government has been implementing ever since late last year has been showing up, its impact in the economy.
So, I think when the government is putting stabilizing the near-term growth as their first priority for 2015, I think you should trust the state council and the government. And we think that we will achieve something slightly below 7% growth this year. So we don't really see the risk of a hard landing.
But I think there's also concern about China's financial risk. You know, especially after the great financial crisis, the leverage level in China has been increasing significantly. Especially, I think the leverage has been pretty much concentrated in the local government and also the corporate sector. And in the financial system you know that, China, the financial system overly relies on the banks. So that makes the financial risk pretty significant at this moment.
But I think what we have seen in recent years is that the policy maker and regulator has been trying to contain that leverage growth. So we have seen leverage growth has been slowing down recently. And also, I think, China is trying very hard to diversify that risk away from local government and [the] corporate sector and also the banking sector.
You know, one of the examples is that the local government debt swap [was] recently announced. So the local government, they can issue municipal bonds with longer duration and lower financing cost and in exchange for the bank loans or the trust loans they have borrowed in the past. So, basically, this helps to diversify the risk and lower the financial risk in China.
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Vanguard senior Asian economist discusses expectations for China
In this short video, Vanguard Senior Asian Economist Qian Wang explains what’s driving slower growth in China. She also discusses fiscal policy initiatives and the near-term prognosis for China’s economy.
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- All investing is subject to risk, including the possible loss of the money you invest.