Banks raise China growth forecasts, but flag unaddressed risks

Wed Sep 11, 2013 4:33am EDT
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By Kevin Yao

BEIJING (Reuters) - Investors are confident China has put a floor under a protracted slowdown for now and will meet the government's growth target for 2013, but analysts say the trade-off is a delay in addressing imbalances in the world's second-largest economy.

Several investment banks upgraded near-term forecasts for China's growth after a run of strong data for August, including factory output and exports, and many now have full-year growth above the official target of 7.5 percent.

UBS, Deutsche Bank, CICC and Nomura were among the banks to upgrade their growth forecasts for 2013 after the recent data, and now all have it 7.6 percent or higher.

Only a few weeks ago, there were fears such growth -- which would be the slowest in more than two decades -- was out of reach as officials tried to shift the economy away from a dependence on exports and investment towards consumption-led growth.

But some now worry the upturn has been driven by investment and property on a revival of so-called shadow banking in August, as cash conditions improve after a credit crunch in June when the central bank had tried to curtail risky lending by banks.

"We note that the fundamental challenges facing the Chinese economy -- industrial sector overcapacity, latent property bubble, financial risks amid lower potential growth -- have not been resolved," said Jian Chang, China economist at Barclays Capital in Hong Kong in a research note.

"And in fact, any strong pick-up in infrastructure and property investment growth now may mean a further worsening of the imbalances, and thus, a further delay in moving the economy on to a more sustainable path."

Indeed, some economists at government think-tanks believe Premier Li Keqiang will cut the growth target to 7 percent in 2014 at the annual meeting of parliament next March.   Continued...

An employee monitors molten iron being poured into a container at a steel plant in Hefei, Anhui province September 9, 2013. REUTERS/Stringer