17 Jul 2014
Chinese local debt fears to recede? - NAB
FXStreet (Bali) - Government financial reforms could ease local government debt fears, notes Gerard Burg, Senior Economist at National Australia Bank.
Key Quotes
"In late June, China’s politburo agreed to fiscal and taxation reforms that were outlined at last year’s Third Plenum. These reforms should provide greater transparency and predictability of local government revenues. Together with local government bonds (currently a pilot scheme), these measures could reduce the concerns around local government debt and the high dependency on land sales to service debt obligations (a major concern given softening trends in the real estate sector)."
"China’s National Accounts data shows that the economy grew by 7.5% in year-on-year terms (levels marginally stronger than market expectations of 7.4%). This result was consistent with partial economic indicators, which showed the economy stabilising in the June quarter, following on from the declines recorded in Q1."
"Policy measures have been introduced to stabilise the economy, however they remain well short of previous stimulus measures. Investment in social housing, for example, is unlikely to compensate for the slowing trends in residential construction. Our forecasts remain unchanged, with economic growth at 7.3% in 2014, and slowing further to 7.0% in 2015."
"Growth in industrial production picked up in June – with output increasing by 9.2% yoy in June (up from 8.8% in May). This level points to stabilisation in the secondary sector, following the slowdown since late 2013."
"Trends in fixed asset investment also pointed towards stability, having fallen sharply in late 2013, with growth at 17.6% yoy in June, up from 17.0% in May. This was the strongest growth rate since February this year."
Key Quotes
"In late June, China’s politburo agreed to fiscal and taxation reforms that were outlined at last year’s Third Plenum. These reforms should provide greater transparency and predictability of local government revenues. Together with local government bonds (currently a pilot scheme), these measures could reduce the concerns around local government debt and the high dependency on land sales to service debt obligations (a major concern given softening trends in the real estate sector)."
"China’s National Accounts data shows that the economy grew by 7.5% in year-on-year terms (levels marginally stronger than market expectations of 7.4%). This result was consistent with partial economic indicators, which showed the economy stabilising in the June quarter, following on from the declines recorded in Q1."
"Policy measures have been introduced to stabilise the economy, however they remain well short of previous stimulus measures. Investment in social housing, for example, is unlikely to compensate for the slowing trends in residential construction. Our forecasts remain unchanged, with economic growth at 7.3% in 2014, and slowing further to 7.0% in 2015."
"Growth in industrial production picked up in June – with output increasing by 9.2% yoy in June (up from 8.8% in May). This level points to stabilisation in the secondary sector, following the slowdown since late 2013."
"Trends in fixed asset investment also pointed towards stability, having fallen sharply in late 2013, with growth at 17.6% yoy in June, up from 17.0% in May. This was the strongest growth rate since February this year."