China to grow by 7-7.5% this year

China to grow by 7-7.5% this year

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State Street Global Advisors Investment Solutions Group strategist George Hoguet has expressed confidence that China’s economy will grow by between 7% and 7.5% in 2014 despite potential problems in its financial markets and shadow banking system.

In its most recent World Economic Outlook (October 2013), the IMF forecasted the Chinese economy will grow 7.3% in 2014. However, Hoguet observed that global investors are increasingly worried about the state of the Chinese financial markets and in particular, the shadow banking system.

“Also of concern is the pace of the implementation of the recently announced goals of the Third Party Plenum and the implications of the gradual liberalisation of interest rates for corporate solvency and financial stability. The recent spike in Shanghai Interbank Offered Rate (SHIBOR), while not as pronounced as the interest rate surge of July 2013, is a reminder of the potential for a liquidity squeeze.”
 
Hoguet expects Chinese interest rates to rise in 2014 and said this development may increase financial market volatility. “Global investors should pay close attention to the policy actions of the People’s Bank of China (PBOC) and the speed with which reforms are implemented. Risks to economic activity in China in 2014 are to the downside, but there is insufficient evidence as of the start of 2014 to suggest that consensus is widely off the mark.”

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