China's growth set for further slowdown

An investor looks at information displayed on an electronic screen at a brokerage house in Shanghai.

Weak external demand and slack domestic investment could drive China's economic growth down to 7 per cent next year from about 7.3 per cent this year, the country's leading think tank warned on Monday.

The Chinese Academy of Social Sciences said that 7 per cent would still represent "fast and stable" growth sufficient to accelerate structural reform and maintain a healthy labour market.

Consumer inflation may drop to 1.8 per cent next year from about 2 per cent in 2014, exacerbating deflationary pressure, it said.

"Fixed-asset investment remains the key to stabilizing the world's second-largest economy at present, but its marginal effectiveness is weakening," said Li Xuesong, deputy director of quantitative and technical economics at the CASS.

In 2015, fixed-asset investment is expected to reach 59.4 trillion yuan (S$12.6 trillion). That will be a growth of 14.7 per cent, compared with a forecast of 15.8 per cent for this year.

Weak external demand and sluggish commodity markets will overshadow China's trade next year, but import growth may accelerate to 4.6 per cent from 2.2 per cent this year, according to the CASS.

Industrial profits are likely to fall in 2015 as a capacity glut persists and labour and land costs rise.

Li said: "As market demand is likely to stabilize, the economic slowdown may bottom out next year, and a rebound will then emerge."

He advocated that the government maintain but "moderately ease" its prudent monetary policy. "Targeted easing of credit policy will continue to support the real economy," he said.

In the first three quarters of this year, GDP growth slowed to 7.4 per cent year-on-year. Last year, the full-year rate was 7.7 per cent.

A dramatically cooling domestic property market and rising debt remain at the top of the list of economists' concerns.

Zhu Haibin, chief economist in China at JPMorgan Chase & Co, said on Monday in Hong Kong that the property sector has become "an obvious drag" on the economy in 2014, and the phenomenon will persist in 2015. Real estate activity will further slow as inventories mount, he said.

He also said that fast-mounting corporate debts are becoming the primary source of risk in the financial sector. The debt to GDP ratio surged to 137 per cent as of the third quarter, compared with 90 per cent in 2007.

"We expect the government to lower its growth target to 7 per cent for 2015 from 7.5 per cent in 2014."

Zhu said that the bank forecasts 2015 GDP growth of 7.2 per cent, with consumption, investment and net exports contributing 3.4, 3.1 and 0.7 percentage points, respectively.

The CASS report also called for tighter scrutiny of cross-border capital movements to deter large speculative money outflows.

"Reform of the current foreign exchange management system should be accelerated next year, in order to support a more flexible and market-determined monetary policy," the report said.

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