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SP500 PE Ratio vs. CPI Inflation

Repeats Story Initially Transmitted at 13:03 GMT Oct 10/09:03 EST Oct 10
--Says Funding Shock, Trade War Could Derail Economy
--Urges More Flexible Exchange Rate
By Vince Morkri
     BEIJING (MNI) - The International Monetary Fund on Tuesday revised up its
growth forecast for China, saying in its latest World Economic Outlook that it
now expected the country's GDP to reach 6.8% this year, an increase of 0.1
percentage point from its previous forecast. 
     The IMF also revised up China's 2018 GDP to 6.5% from its previous 6.4%
projection in July.
     The revision were not a ringing endorsement of China's economy, however,
with the IMF attributing the renewed outlook not only to stronger external
demand, but to "a slower rebalancing of activity toward services and
consumption, a higher projected debt trajectory, and diminished fiscal space."
It warned that unless the Chinese government accelerates its effort to rein in
credit growth, "these factors imply a heightened probability of a sharp growth
slowdown in China, with adverse international repercussions."
     Specifically, the IMF warned that a downturn could occur through a
short-term funding shock in China's interbank market or in the funding market
for wealth-management products, or via the imposition of trade barriers --
although it did not explicitly mention the United States as being the likely
provocateur in such a circumstance. 
     U.S. President Donald Trump in August gave the green light to U.S. Trade
Representative Robert Lighthizer to investigate China for what the U.S. claims
is China's rampant theft of intellectual property from American firms. China
condemned the move, saying it smacked of "unilaterlaism" and contravened World
Trade Organization rules. 
     The upward growth revisions for China come amid "buoyant" global financial
conditions and "brighter prospects for the advanced economies" in the world,
said the IMF, which also upgraded its global growth projections to 3.6% for this
year and 3.7% for next year -- both 0.1 percentage point increases from the
previous forecasts.
     Despite the upgraded China and global forecasts, the IMF said the world
economic recovery was "still incomplete in important respects" and urged
policymakers to take advantage of the current "window for action" to effect
policies supporting growth and raising economic resilience.
     China's GDP growth in the first half of this year was a
better-than-expected 6.9%, fueled by a property boom and government
infrastructure projects like the "One Belt, One Road" initiative and the Xiongan
New Area -- a special economic zone intended to divert some government functions
away from Beijing while serving as a model for high-density urban development. 
     The Chinese government has set a target of 6.5% growth for this year,
although the head of China's National Bureau of Statistics said at a press
conference on Tuesday that China would have "no problem" meeting that goal, and
that growth "may even be better" than the 6.5% goal. 
     If the IMF target is attained, it will be the first time China's GDP has
accelerated in seven years. Last year's 6.7% pace was a 26-year low, down from 
6.9% in 2015. 
     As for China's monetary policy framework, the IMF said it could be made
more effective "by phasing out monetary targets, resuming progress toward a more
flexible exchange rate, and improving communications." Such exchange-rate
flexibility would help boost capital inflows into China and help safeguard
growth, the IMF said.
     "In China, minimizing the risk of a sharp economic slowdown will require
intensification of the authorities' current efforts to tighten supervision, rein
in the expansion of credit, and tackle the underlying stock of bad assets," it
said. 
     The IMF also pointed to a surge in China's import demand as a key driver
for expected upticks in growth in South Korea, Hong Kong, Taiwan and Singapore.
     It also said China's current-account surplus would decline slightly as
imports recover, and predicted that inflation would pick up gradually to reach
2.6% over the "medium term."
--MNI Beijing Bureau; +86 (10) 8532-5998; email: vince.morkri@marketnews.com
--MNI BEIJING Bureau; +1 202-371-2121; email: john.carter@mni-news.com