The slump in the Chinese economy slowly is bottoming out.
Although China’s central bank has slashed the country’s forecast of exports the second consecutive time in a year, it has said it still expects the economy to grow at 6.8%.
In its mid-year work report the People’s Bank of China (PBOC) has warned the government’s efforts to reduce the overcapacity and notable debt levels could possibly increase the risks of default of defaults in the bond market as well as make it significantly more difficult for companies to raise funds.
This disclosure comes ahead of the U.S. Federal Reserve’s policy meeting next week. Earlier last week it had said the raising of U.S. interest rates would have a positive impact on global capital flows.
“Since the beginning of this year, the global and domestic economic environment has experienced a number of changes. Reflecting these recent developments, we revised our China macroeconomic forecasts for 2016. Compared with our published forecasts in December last year, we maintain our baseline projection of 2016 real GDP growth at 6.8 percent,” reads the PBOC report.
PBOC’s report was released shortly after the release of data last month which showed that Chinese exports had slumped by 4.1% annually in May. This is significant since the annualised fall was more than what was predicted. It marks its 10th straight decline in the last one year.
Imports however have declined only marginally, as per expectation, which is a pointer to improving domestic conditions and adding to the view that the economy is very slowly stabilising.
Some economists have however cautioned against disguising the yuan against speculation as imports from Hong Kong may have been highly inflated through trade invoicing. Last month the yuan came under renewed depreciation pressures as the USD surged ahead.
According to Chinese customs data, while imports from Hong Kkong have jumped by 242.6% from a year earlier, exports to Hong Kong have fallen by 7%.
“We don’t expect the trade figure will change the PBOC’s attitude towards the (yuan) exchange rate. They still prefer stability,” wrote ANZ economists in a research note.
This week however, in the wake of disappointing U.S. jobs data, the pressure on the yuan eased.
This week U.S. officials while visiting China have pressed it to lower trade barriers for foreign businesses while underscoring the fact that Chinese companies are dumping under-priced goods and steel in offshore markets.
Despite voicing these concerns, as per available May trade data, rare earth and steel exports are seeing continued growth.
Meanwhile, according to indicators from investments, consumers, and from the China’s factory sector, the prolonged collapse of the world’s second biggest economy is likely to be bottoming out. Many analysts no longer expect any aggressive policies in going forward, thus bringing about concerns of rising bad debt levels.
Categories: Economy & Finance, Strategy
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