MNI Interview: CICC 'Optimistic' China Can Hit 6.9% GDP in '18

By William Bi

     BEIJING (MNI) - China International Capital Corp., the first joint-venture

investment bank established in the country, said it is "more optimistic" than

other forecasters on China's growth next year given the strength of consumer

spending, investment in the property sector and capital expenditures in

manufacturing.

     While China faces difficult challenges, including bringing down high debt

levels, it has the willingness and capability to address those problems while

maintaining a strong economy, CICC's chief economist, Liang Hong, wrote in an

email to MNI.

     Liang made the comments after MNI questioned the firm's bullish report on

the outlook for China's economy published two weeks ago. The report predicted

6.9% GDP growth in 2018. The comments also came as October key indicators fell

short of expectations, leading some to question whether the economy has lost the

unexpected bump in the first half, when a flood of investment projects,

government-led capacity cuts and revived exports injected strength back into the

sluggish manufacturing sector and the economy.

     The slight fall in October conditions wasn't enough to change Liang's view,

though. "We believe China's recovery has more legs to run," said Liang, who was

with Goldman Sachs before joining the state-owned investment bank in 2008.

     Both monetary and fiscal policies remain accommodative to economic growth,

and a global expansion will benefit Chinese exports, she said.

     Liang also pointed out that on the back of the government's decisive

anti-poverty and anti-corruption policy efforts, income and wealth distribution

have been improving in China over the past five years.

     President Xi Jinping, who is also the leader of the Communist Party of

China, has vowed to bring every corner of the country out of poverty by 2020,

prioritized a cleaner environment, and announced that the government will no

longer set hard GDP growth targets while the economy transitions to more

sustainable growth.

     A more balanced increase in the strength in consumer demand should give

investors confidence that China's growth model has become healthier and more

sustainable, Liang said.

     In many ways, Liang's views are shared by other economists, except that

Liang was more bullish and predicted that the benefits from the turn toward a

consumption growth model will have a more immediate impact.

     Lu Zhengwei, the chief economist of Industrial Bank Co. of China, presented

the same argument: that China's reform is on track, and that the economy is

shifting to a healthier and more sustainable model. The government is less

concerned about growth, which means the rate will likely fall back, although

still within the government's tolerance, said Lu, who projected 6.5% GDP growth

next year.

     What is telling, though, is that domestic investors are shrugging off

concerns that international bodies, such as the International Monetary Fund,

still fret over, including China's high leverage ratio, banks' bad loans,

so-called zombie companies, and a resurgence of state-owned companies that seem

to roll back a market-based economic transformation.

     "Everything needs to be looked at in relativity," said a Beijing-based

investor. "If you make the whole economy bigger, then as long as the government

doesn't allow the problems to get bigger, those problems won't seem as big," he

said.

--MNI Beijing Bureau; +86 10 8532 5998; email: william.bi@mni-news.com

--MNI Beijing Bureau; +86 (10) 8532-5998; email: vince.morkri@marketnews.com

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