China Business Forecast Report Q1 2014 By Business Monitor International
China Business Forecast Report Q1 2014
Business Monitor International
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.
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% to7.6% 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
The main downside risk to our economic outlook remains another collapse in external demand, such as the one
that occurred at the height of the global financial crisis. This would seriously undermine growth in tradedependent industries and hasten a fall in the property market, potentially leading to an outright recession. There
is also a risk that continued fiscal and monetary stimulus by the government and the People's Bank of China
could usher in stagflation.
The major political risk comes from a rise in social unrest and a surge in public demonstrations against
government corruption, inflation and housing affordability, which could be triggered by overseas events or an
economic slump. While we do not see the rule of the Communist Party of China as being at risk, such events
would still have a detrimental impact on the business environment and could see the party strengthen its grip on
the economy to the detriment of growth.
About the Publisher
Business Monitor was founded in 1984 by Richard Londesborough and Jonathan Feroze, the
company's joint CEOs, who both continue to play a full role within the company.
The company was awarded the Queen's Award for Export Achievement in 1997. Business Monitor
is a wholly independent company, headquartered at Blackfriars, London, with foreign offices in
Hong Kong, New York, Singapore and South Africa. Our corporate mission is to become the world's
No.1 Independent Information Provider in its field (Country Risk & Industry Research).
Business Monitor International (BMI) is a leading, independent provider of proprietary data,
analysis, ratings, rankings and forecasts covering 195 countries and 24 industry sectors. Quarterly
updated Country Risk Reports and Industry Market Reports are available for nearly 200 countries
and 24 industry verticals. These reports provide in-depth analysis of current risks and opportunities
and the future outlook for each market.
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