Bulk of China slowdown over: Bank of S'pore

Singapore - A LARGE part of China's slowdown has already occurred, and things could be less bad for the global economy going forward, said Richard Jerram, chief economist at OCBC's private banking arm, Bank of Singapore.

Risks remain of a hard landing in the short term, due to the usual overcapacity and credit bubble issues, Mr Jerram said at a media briefing on Tuesday.

However, the government has the capacity to bail out banks, while there is room for productivity growth to boost the economy, he said.

"I think you can never get back to the good times . . . that's fine . . . you're getting back to a fairly normal environment of slow technological catch up with developed countries," Mr Jerram said.

China can then become a "normal emerging market with no distinguishing features" growing at 4-5 per cent a year, he said.

Mr Jerram was speaking after latest data on Monday showed the Chinese manufacturing sector continuing to contract, be it in new export orders, employment or production.

On Monday, a rout in China shares forced a temporary closure in its markets and also dragged down global stocks.

Mr Jerram believes any further decline in China's economy will not be as dramatic as falls seen in recent years. Growth in China's annual industrial production, an indicator which measures what the country's factories and mines produce, has already slowed from 14-15 per cent five years ago to 5-6 per cent in the past year.

Meanwhile, services is slowly taking a larger share of the economy compared to manufacturing, he said.

"If we're two-thirds, three-quarters through the slowdown, then markets can start to anticipate maybe some stabilisation for growth in a couple of years, and at least begin to look for headwinds to emerging markets fading. You can begin to look for turning points in commodity prices," he said.

After Monday's stock market rout, market players are urging investors not to overreact.

"There is more noise here than actual signal," said Jim McCaughan, CEO of fund manager Principal Global Investors, in a blog post.

China's economy is slowing but a transition to its new economic model can still mean 4 per cent economic growth a year, he said.

"That is slower than previously stellar levels, but still solid growth … and more to the point, it is a sustainable level of growth," he said.

Rashmi Sadhwani, investment strategist at private bank Coutts, said that China economic data is not as bad as investors fear.

Official December manufacturing data for state-owned enterprises showed some improvement, compared to Monday's weak data that focused more on small and medium enterprises (SMEs), she said.

In the short term, she believes struggling SMEs can be boosted by government stimulus measures. The services sector continues to outperform manufacturing, and consumption remains stable, she said.


This article was first published on January 6, 2016.
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