Based in Hong Kong, Seeing Cheung, Assistant Vice President at SHK Private, analyzes China’s and Hong Kong’s financial markets.

Today, she explains China’s economic program for 2017 and reveals the main themes to be discussed during the National People’s Congress (NPC), which will be held on March 4th and 5th in Beijing. (Disponible en Français)

Three major challenges for China in 2017 (15/02/2017)

« China’s top priority in 2017 is the stability at every level, social, economic and financial. The authorities are also wishing a re-balancing of the household income disparities between the urban and rural worlds. »

seeing-cheung_page What is China’s priority in 2017?

China’s top priority in 2017 is the stability at every level, especially before the 19th National Congress of the Chinese Communist Party (of November, 2017). The Chinese authorities want to maintain the social peace and moderate economic growth, while preventing from another speculative bubble in the property housing market likely to blast quickly, such as the real estate in the large cities of the country (Tier One and Tier Two). In Beijing, in particular, a new mortgage policy has just been set for banks, limiting the longest repayment term for a second home loan to 25 years, from 30 years previously. The Chinese government has already said that the available houses were for people to live, not for some speculative exchanges on the market. Besides, the Chinese authorities don’t want to repeat the same mistake of the 2015 stock crash in A shares. In order to preserve financial stability, they will also watch closely the depreciation of the Renminbi against the dollar, so that it doesn’t trigger a confidence crisis and cause massive capital outflows from the country. This task is all the more complex that the monetary authorities’ strategy is to let the Renminbi follow its reference index, the China Foreign Exchange Trade System (CFETS), a basket of the country main business partners’ currencies. The Dollar weight in the CFETS has already been lowered to 22,4 % from 26,4 % starting from January 1, 2017.

How do you explain the recent interest rate hike on the money market?

The recent small increase (one-tenth of a point) of the short-term rates on the money market, just decided by the People Bank of China (PBOC, the central bank of China) – on February 3rd, back from the Chinese New Year holidays -, has surprised the market and caught everyone’s attention. Such a movement had not been observed for four years. However, one reason behind this monetary tightening is to defend the Renminbi against the dollar appreciation. The second reason is the pursuit of the fight against the « shadow banking”. It is absolutely necessary to slow down its expansion and, again, to maintain the stability of the Chinese financial system. To achieve this goal, other monetary interventions of that kind may occur all year around.

What will be the GDP growth target this year?

A GDP growth rate of about 6,5 % may be targeted in 2017 (compare to 6,7 % in 2016), coming from the service activities’ development and from the domestic household consumption. This objective may be confirmed and detailed during the annual conference of the People’s National Congress (NPC), which will be held at the beginning of March in Beijing. This meeting should also use the opportunity to confirm the rationalization objectives of the most polluting manufacturing sectors, the investments in order to cut the strong pollution of the country and to reorganize the territory. The authorities are wishing a re-balancing of the household income disparities between the urban and rural worlds, which have increased. It implies a connectivity strengthening between the diverse Chinese provinces, at least by developing the transportation network. At the moment, it takes three days to travel by train from Shenzhen to the region of Xinjiang (about 4 600 km), or, 8 hours by plane, in other words, only less than one hour and a half than a flight from Hong-Kong to Sydney! This regional integration project has to be linked to the OBOR initiative (« One Belt, One Road »). And, it is in that context that the Xinjiang central government plans, for example, to spend 1.5 trillion of Renminbi in infrastructure this year.

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