According to Citi Research, China’s economy bottomed in Q2 and is likely to rebound moving forward.
“The key drivers of growth recovery are that de-stocking is near its end, the hard landing risk of the property sector is contained, and investment, consumption and exports had shown signs of improvement in June. In our view, given more policy supports in the near term, 3Q GDP growth will likely be flattish.”
In addition, credit and fiscal policy support is likely to help boost the economy.
“First, the planned Rmb360bn infrastructure investment will be fully implemented. Second, the government may draw down Rmb150bn from its macro stabilization fund to elevate the spending capacity, including interest subsidies to designated strategic new industries. Third, in the medium term, experts agree that it’s more fundamental to cut valuate added tax rate. And if it happens, it will be much more significant on the VAT conversion in the service sector.”
The article also stated that proper rebalancing by China in the near term future could have a very strong impact on its growth.
“Instead of 10-15 years, China’s rebalancing is expected to be largely completed by the end of the 12th five-year plan or early 13th five-year plan. If so, China’s potential growth rate may return to 9% p.a. Urbanization is likely the major driver of growth. From 1978 to 2010, the net increase of permanent urban residents (those with urban hukou) was only 280mn, In the future, another 900mn people will move into cities assuming 70% urbanization rate. This will lead to fundamental changes in household savings and consumption behavior, and require huge increase in public goods and services. Financial reforms could be another area of key policy focus in the new government.”
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