China economy recovering, bad debt risks dismissed

Nov 12 2012, 16:16 IST
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SummaryLocal authorities had racked up 10.7 trillion yuan ($1.7 trillion) of loans by the end of 2010.

the economy had been mistimed, unintentionally coinciding with a sharp slowdown in external demand, with recovery in the United States remaining tepid and Europe still unable to escape its sovereign debt crisis.

Zhang Zhiwei, chief China economist at Nomura, predicts China's economic growth will pick up sharply in the fourth quarter to 8.4 percent, which would be the highest in a year, from 7.4 percent in the third quarter.

The stronger-than-expected export data in October supports our view, Zhang said. We believe domestic demand is improving and will likely strengthen further over the rest of 2012 as the policy stance is set to remain loose, he wrote in a note to clients after Saturday's trade data.

Consumer price inflation eased to its slowest pace in nearly three years in October, to sit well below the government's official 4 percent target.

Government officials have said repeatedly they intended to use a period of slowing growth in 2012 to adjust economic policy settings, particularly around prices administered by the state, that might otherwise risk fuelling inflation.

Such reforms are regarded as crucial, both by foreign analysts and government think-tanks, if China is to maintain robust growth needed to close a yawning wealth gap and support an urbanisation drive core to Beijing's development plans.

Hu's keynote speech at the opening of the congress acknowledged as much. He said China's development should be much more balanced, coordinated and sustainable.

The party, which has constantly stressed the need for continued one-party rule, has tied its legitimacy to economic growth and lifting hundreds of millions out of poverty.

Hu will hand over his post as party chief to anointed successor Vice President Xi Jinping. The congress ends on Wednesday, after which the party's new Standing Committee, at the apex of power, will be unveiled.

The economic challenges ahead for China's new leaders remain intense, even if the near-term risk of a sharp slowdown and massive job cuts - a so-called hard-landing - has been averted, according to Alistair Chan, an economist at Moody's Analytics.

Outgoing President Hu Jintao, Premier Wen Jiabao, and other retiring members of the Politburo can exit knowing their efforts to engineer a soft landing are paying off, Chan said.

A consensus seems to be emerging within China that the HuWen administration missed opportunities for reform and that many problems were kicked down the road, he wrote in a client note.

Without reform, productivi

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