"China Business Forecast Report Q1 2014" now available at Fast Market Research

From: Fast Market Research, Inc.
Published: Wed Nov 06 2013

With Chinese economic activity stabilising, there is optimism that growth could accelerate amid proposed free market reforms. While we believe that resource price liberalisation, which would loosen the power of state owned enterprise, and labour market reform could help China to grow strongly over the coming years, these reforms are by no means a given considering the opposition from vested interests. Even if reforms are enacted, the dominant driver of the economy in 2014 will be the unwinding of the country's credit bubble, which is likely to undermine economic growth and create further stress in the banking system.

Full Report Details at
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Opposing inflationary and deflationary forces will complicate Chinese monetary policy over the coming quarters. Excessive credit growth and record property prices suggest the need for tightening, while subdued headline consumer price inflation, banking sector stress and plunging equity prices suggest there is a case to be made for easing policy. We believe that deflation is more likely than a spike in inflation, and expect the central bank to act accordingly, easing interest rates and providing support to the banking system as credit growth slows, negatively impact the real economy.

China's upcoming Third Plenary Session of the 18th CPC Central Committee, set to be held in November, will very likely provide further insight into the scope of economic, financial and social reforms that the government is set to introduce. Hukou reform, the maturation and opening up of the country's financial markets and capital account, subsidy reform, and the wider transition from investment- to consumption-led economic growth are likely to be on the table.

President Xi Jinping will likely use the session as a platform on which he can further burnish his anti-corruption credentials, and the party will, as always, look to present a completely unified front. That said, a number of reports continue to reflect a schism between reformist and more reactionary factions within the government, and Xi will likely choose to tread a middle ground between the two extremes.

Major Forecast Changes

We have upgraded our 2013 real GDP growth forecast from 7.5% to 7.6% to reflect the recent stabilisation in economic activity readings.

We have also revised up the outlook for the yuan, now expecting stability rather than weakness. The central bank's determination to resist depreciation over recent months in spite of regional weakness is a positive sign that stability will be forthcoming.

Key Risks To Outlook

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