UBS Says Beijing's Got It Right On China GDP Growth

[onebyone]

DEC 28, 2015 @ 11:48 AM 540 VIEWS

UBS Says Beijing's Got It Right On China GDP Growth



Kenneth Rapoza ,

CONTRIBUTOR

I cover business and investing in emerging markets.

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A group of Chinese workers wait for a shuttle bus outside a construction site in Beijing on December 28, 2015. The property sector is one of the worst performing, but hasn’t turned negative on the year. (Photo by WANG ZHAO/AFP/Getty Images)

Come to find out, China’s economy is not in the toilet. If you believe UBS, fourth quarter GDP should come in at 6.9%. Not bad. And far from the 2% growth some uber-bears keep warning about.

“I hear a lot of people saying China’s manufacturing sector is dying and how they’re not players anymore,” says Patrick Van Den Bossche, a partner at A.T. Kearney. He was visiting private Chinese companies this past spring. Is all hell breaking loose? “My response to those who are forecasting the death of the Chinese manufacturer…wait two or three years. It’ll be a much different story,” he says about Chinese firms automating and quickly moving up the value chain to take on Western rivals in Asia.

China’s year-end GDP should come just around 7%, UBS forecast on Monday, putting it in line with official Beijing’s thinking.

“November’s economic data confirms that China’s real economy is stabilizing tentatively at low levels, but the continued worsening of construction activity means that we are far from seeing a fundamentals-driven rebound,” said the report.

China’s November data was better than expected, with an increase in infrastructure investment, steady consumer consumption and manufacturing on the rise.

Infrastructure investment rose by 18.2% year-over-year in the first 11 months of 2015, 0.8% percentage points higher than the Jan-Oct period.


Retail sales rose 11.2% annually in November, the highest monthly growth rate this year. Value-added industrial output grew 6.2% last month, up from 5.6% in October.

 

[onebyone]

Property construction is on the wane, particularly in second and third tier cities. Real estate investment rose 1.3% year on year in the first 11 months, compared with a 2% growth rate in the Jan-Oct period.

Xi Jinping, China’s president, right, pauses as he is shown around the offices of Huawei Technologies Co Ltd. by Ren Zhengfei, billionaire and president of Huawei Technologies. Zhengfei, like Alibaba billionaire Jack Ma, is the face o new, high powered, private China businesses. (Photo by Matthew Lloyd/Bloomberg)

Corporate investment remained weak, according to the UBS report.

China’s taking a cue from the West and Japan with its own mini-QE, but UBS thinks this will only partially offset a weakening property market and the country’s nagging oversupply issues in certain sectors. Tax cuts for private small and medium sized businesses, plus increased spending on social welfare from the central government, will take longer to show in the economic data.

UBS expects further interest rate cuts next year.

George Hoguet, a managing director from State Street Global Advisors in Boston told FORBES recently that while China may not be crash landing, a prolonged slowdown is cause for concern. Investors will have a harder time being passive, especially in the state-owned-enterprise heavy exchange traded funds like the iShares FTSE China (FXI).


“The problems are significant in the corporate sector and in provincial companies,” Hoguet says. Local debt issues have investors more worried than the housing market. “The government has further extended maturities on these small town and village enterprises, lowered interest rates, and got rid of these special obligation vehicles in the shadow banking system which were very risky. I think that the worst thing that happens on the provincial level is that the central government takes the debt onto its own balance sheet. I don’t think it will get to that point, at least not publicly, nor do I think there will be a major financial crisis in China.”
UBS Says Beijing's Got It Right On China GDP Growth

 

[Kyle Sun]

XI looks tired .

It must be a very tough job to manage a giant country like China.

 

[TaiShang]

The usual Western intellectual evolution with respect to China's economy:

Criticism --> Mockery --> Skepticism --> Silence --> Conditional acceptance --> Full acceptance --> Endorsement