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MNI INTERVIEW: China GDP To Beat Expectations- Ex PBOC's Sheng

MNI (Singapore)

China’s third quarter gross domestic product growth is likely to beat expectations after central bank data on aggregate financing to the real economy (AFRE) signalled that the economy's expansion hit bottom in August, a former high-ranking People’s Bank of China official told MNI.

Investors expect Wednesday’s release to show that GDP growth printed at 4.5% year-on-year in Q3, down from Q2’s 6.3%, but Sheng Songcheng, former head of the PBOC’s statistics department, noted that AFRE rose by 9%y/y in August, up 0.1 percentage point from July and ending five consecutive months of slowdown since February.

“Outstanding AFRE grew by 9% y/y as of the end of September, which is not low considering the GDP target is around 5% and inflation remains tepid,” Sheng said, referring to the official target of “maintaining AFRE growth in line with the expansion rate of nominal GDP.”

However, Sheng, now a professor at the China Europe International Business School in Shanghai, said the PBOC should retain its easing bias as recovering consumption and rising investment would take time to feed into an economic rebound. There is still space for cuts in interest rates and reserve requirement ratios, he said.

“RRR reduction would be a better option since it can add liquidity for commercial banks and support government bond issuance,” he said, noting the significant role of government borrowing in growth in AFRE.


An indicator unique to China, the 13-year-old AFRE gauges bank loans as well as off-balance-sheet funding and equity financing. Local investors have noted the measure’s relative weakness in recent months, despite PBOC easing, but Sheng said that fiscal and financial market activities affect the AFRE too.

Medium- and long-term loans to households added CNY201.4 billion to September’s AFRE versus the same period last year, indicating recent moves to relax controls on house buying have worked, Sheng said. Adjustments to housing policy will also boost developers, increasing their bank loans and bond sales, he said.

“The property-related items in AFRE indicate the housing market is stabilising,” Sheng said.

As to China’s rising debt/GDP ratio, which jumped to 290% in Q2 according to the PBOC, Sheng said this move higher would be temporary and the ratio will steady with economic recovery. Authorities will continue to drive for economic expansion, increases in employment and to improve household income to bolster consumption, he said.


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