The year’s Chinese People’s Political Consultative Conference (CPPCC) kicks off in Beijing today. The National People's Congress (NPC) will follow closely. Chief researchers from securities companies, including Zhu Haibin, chief economist with JPMorgan China, Liang Hong, chief economist with China International Capital Corp. Ltd., Ren Zeping, chief economist with Founder Securities, Li Huiyong, chief economist with Shenwan & Hongyuan Securities and Chen Jie, chief economist with GF Securities, have made forecast for China’s GDP growth target for 2017.
2017 GDP growth target likely to remain unchanged from last year.
As for the much-concerned GDP growth target to be released in this year’s government work report, Zhu Haibin analyzed that in the past two years, China cut GDP growth target from 7.5 percent to 7 percent, than to a range between 6.5-7 percent. He expects the target to remain in the zone in 2017.
Zhu indicates that negative factors that will impact China’s economic growth this year include real estate investment and automobile sales are among negative. The uncertainties have closely related to the prospect of the real estate market as well as the evolvement of financial risks and external risks. To achieve a balance between economic growth and risk management remains to be a major challenger for policy makers.
Chief economist Liang Hong holds the same idea with Zhu. Liang revised up her actual GDP growth forecast for 2017 from 6.7 percent to 6.8 percent, while maintained the actual GDP growth forecast for 2018 at 6.7 percent.
However, as investment and export demands have improved better than expectations, Liang raises her forecast of the country’s economic growth and inflation for 2017-2018. She revised up her forecast of the nominal GDP growth for 2017 from 9.3 percent to 11.5 percent, and that for 2018 from 9.2 percent to 10.3 percent.
Chief economists Ren Zeping and Li Huiyong forecast that China will set its GDP growth target at around 6.5 percent for 2017. Ren expects that the government will set GDP growth target at around 6.5 percent and the CPI growth target at around 3 percent, unchanged from last year; M2 growth will be at 12 percent, down 1 percentage point from 2016; the ratio of deficit will be at 3 percent, unchanged from 2016. Li also estimates that more than 10 million new jobs will be created this year.
As for monetary policies, JPMorgan expects that China’s credit policy in 2017 tends to be neutral.
CICC expects that monetary policies will not ease further, and highlight more on financial risk prevention in 2017. Currently, as China’s CPI is relatively modest, the central bank is unlikely to raise deposit and loan interest rates in the near future. But the growth target for M2 and social financing is likely to decrease to 12 percent from 13 percent last year. M2 and social financing growth will be more stable compared to the actual growth last year.
Liang Hong expects that market interest rates, including interest rate corridors and bond yields, will continue to rise. In 2017 the central bank will also raise the interest rate for 7-day reverse repo by 20 basis points to 2.55 percent. And as reflation continues, it is expected that long-term nominal GDP growth and return on investment will rise, and government bond yields may face upward pressure.
Deleverage in financial sector kicks off
“In the first quarter, credits and social financing expanded faster than expected. Capital flew from the virtual economy from the real economy. Investment demands picked up. Policies shift its aim from stabilizing growth to preventing risks and promoting reforms.” Ren Zeping analyzes that in 2017 the government will give more priority to risk prevention and deleverage. 2017 is expected to see a structural bullish run. The time around the CPPCC and NPC will be a time window for build long positions in the market, especially in stocks with excellent performance and related to reform.
Li Huiyong believes that the government will maintain its doings in the latter half of 2016 in risk prevention and deleverage. First, it will carry out administrative supervisions, including improving MPA management and the regulatory structure composed of the central bank, the China Banking Regulatory Commission, the China Securities Regulatory Commission and the China Insurance Regulatory Commission. Secondly, it will reduce leverage by adjusting liquidity and price of capital.
In addition, Chen Jie expects that the supply side reform and the “Belt and Road” initiatives will remain to be a key content in 2017 CPPCC and NPC. And more emphasis will be given to the mixed ownership reform and the supply-side reform in agriculture.
Chen Jie explains that the 2017 Central Economic Work Conference highlighted state-owned enterprise (SOE) reform, and proposed that mixed ownership reform will be a major breakthrough for the SOE reform. Given that the government has introduced policies in accelerating mixed ownership reform in central and local SOEs in the field of electricity and oil, the mixed ownership reform will advance comprehensively this year. Industries, such as environmental protection, medical insurance and agriculture, that usually are hot during the CPPCC and NPC, has witnessed an upward trend before the meeting.
Translated by Coral Zhong
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