Uncertainty threatens China growth
CHINA is back at work after a week-long vacation for the Lunar New Year. Around the holiday, many Chinese, eager to learn more about the year ahead, visit a feng shui master to see if the new year will bring good fortune.
Veteran Beijing-based soothsayer Chen Shuaifu, who regularly advises Chinese companies, predicted the Year of the Snake would be a prosperous one for China. The year 2013, he said, should bring rapid economic development for the nation – with GDP growth at 9 per cent. Though most see astrological predictions as only a bit of good fun, there is reason to believe the Chinese economy will recover. Already, the data is indicating a rebound. Factory activity is picking up. Inflation, though rising, is still within the government’s targets. China’s stock markets are nowhere near as dire as they were at the end of 2012.
However, concerns are rising about the sustainability of growth. A flurry of investment projects has helped support the economy. But like four years ago in the aftermath of the financial crisis, economists fear China is hooked on credit.
“The main concern is that credit is fuelling overcapacity on the back of ram- pant corporate investment,” Mark Williams of Capital Economics wrote in a research report. “The most recent data [in January] has added to these concerns.”
Frederic Neumann, Asia economist with HSBC in Hong Kong, believes the economy has turned a corner but could run out of steam amid rising inflation fears. “We count on the monetary impulse to carry growth for a while longer,” Neumann said of the region in a recent research note. “But it’s exactly this that also reveals the region’s vulnerability.”
Add to this uncertainty over China’s new leadership. The incoming admin- istration is officially installed in March. Already public pressure is building for the new president Xi Jinping to push through reforms. Xi has promised to root out corrupt officials and bridge the wealth gap. He has even called on Communist Party cadres to scale back on the national toasting drink, the premium spirit moutai. However, no one is sure how willing Xi is to reform a sys- tem that has supported him, or whether the calcified vested interests will allow his government to address the increasing calls for change.
Xi was born in 1953 – the Year of the Snake. According to tradition, luck is not on your side in the year of your zodiac sign. Feng shui master Chen, though, through a myriad of ancient techniques, has determined that the nation’s leader is exempt from this belief – fortunately for Xi and China.
Eunice Yoon is senior correspondent at CNBC.