China Growth to Hit 9% by Mid-2014: Deutsche Bank
There may be fewer China bulls around these days, but Deutsche Bank remains optimistic about the outlook for the world's second largest economy, forecasting growth will touch 9 percent around mid-2014.
Strong growth in social financing, a pickup in industrial production, alongside a recovery in exports - driven by an improvement in demand out of the U.S. and Japan in the second-half - are factors that will drive an acceleration in gross domestic product (GDP) growth going forward, Jun Ma, chief economist for Greater China at the bank, told CNBC on Wednesday.
Ma forecasts growth will pick up to 7.9 percent in the current quarter, before accelerating to 8.2 percent and 8.6 percent in the third and fourth quarters of the year. Next year, he expects growth to rise to 9 percent around the second quarter before it starts easing.
China's economy grew 7.7 percent in the first quarter, its slowest pace in three years. A recent slew of weaker-than-expected economic data have prompted economists to lower their growth forecasts for China to as low as 7.4 percent - below the official target for 2013 at 7.5 percent.
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"These forecasts sound bullish, but if you take a step back and look at the past two business cycles, the previous peak was 12 percent [in 2009]. [We're] taking into account a very big deceleration in growth potential already," he said.
The recent surge in social financing - a measure of borrowing from banks, bond markets, trusts and other sources - will be a primary driver of the recovery in economic activity, according to Ma.
"Financing leads economic activity by 2-3 quarters. Recent GDP weakness reflects this time lag, and GDP growth will recover," he said.
Social financing grew 58 percent in the first quarter, compared to the same period a year earlier, and 63 percent in April, according to Credit Agricole research.
Many economists have argued that stronger credit growth is merely a result of companies refinancing old projects.
But Ma disagrees, "Refinancing has always happened in history and it cannot explain the recent acceleration," he said.
Secondly, he expects an acceleration in industrial production growth, citing the increasing gap between new orders and production in the economy.
"Demand is ahead of production. When demand is stronger than production, it tends to pull up future production," he said, adding that new orders lead industrial production growth by around three months.
A slowdown in industrial production was a weak spot in the economy in the first three months of the year, growing 9.5 percent year on year, compared to growth of 11.6 percent seen in the same period a year earlier.
Property Construction to Support
Ma added that he expects a pickup in real estate construction to support growth as well.
Real estate investment rose 21.1 percent in the first four months of 2013 from a year earlier, quickening from an annual increase of 20.2 in the first three months.
"Land sales growth began picking up in the fourth quarter of last year, and now it's growing 50 percent year on year which means developers are very bullish," he said. "The purpose of them buying land is to build something. I expect within two quarters construction activities will pick up."
Despite the government's efforts to cool the property market, prices have remained on an uptrend. New house prices in 70 major cities rose by an average of 4.3 percent in April from a year earlier, rising from 3.1 percent in March.
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However, Ma cautioned that uncertainty over further property tightening measures is also a key risk to the outlook for the economy.
"Real estate policy is not entirely market based. Some of these measures are difficult to forecast, they may be coming out of non-economic considerations like resentment towards high property prices, and so on," he added.