During the first three months of 2016, China’s growth is expected to slow to 6.7%. According to Song Yu, the Beijing chief economist at Goldman Sachs Gao Hua Securities, economic growth in China is slowing down because financial services are not contributing as much to the expansion as they did a year ago and policies in support of growth diminished the last quarter of 2015.
China’s Growing Pains for a Consumer Economy
Additional reasons for the slowdown are decreased demand for the manufacturing industry and the transition to a consumer economy. These two points will be good for China in the long-run.
Look at the Bigger Picture
China’s full-year economic growth is expected to drop to 6.4% for 2016. Song Yu, however, remains positive about the year ahead. He easily dismisses predictions about an economic collapse in China: “Some people are making extreme arguments to say that the whole machine is not working. That’s not what we see.”
Why Experts in China are Not Concerned
One reason to not panic over China’s slower economic growth is because policymakers have the scope to foster expansion and can implement new growth drivers. As Song Yu pointed out, China has many ideas that they can use for encouraging growth and tending to the economy, “Easing has been enough to generate mini-ups along a downward trend. And they could have done more. But they chose not to do more and that’s important. They reserved ammo.”
What China Has Done to Help the Economy
For example, policymakers have increased support for China’s economy this week by opening more doors for infrastructure projects to obtain funding. This month, China reduced the minimum required mortgage down payment to 20% for first-time purchases. It was originally at 25%. Thirdly, China’s cabinet has been deliberating the possibility of decreasing the minimum ratio of provisions that banks need for bad loans. This change would make more money available for lending.
Conclusion
For the past two years, Song Yu has ranked the best overall financial forecaster by Bloomberg. He’s not overly concerned about China’s economy and thinks they will get through the slow growth without economic collapse. More importantly, China is strategic about the use of tools for promoting growth to ensure they always have something to implement for a small boost. Therefore, there’s little reason to panic over China’s slower growth.
During China’s slower economic growth, risk mitigation is more important than ever. Contact us for expert help with mitigating risk in foreign markets.
If you are interested in knowing more about China, download the first free chapters of my book here.
