Globe editors have posted this research report with permission of Credit Suisse. This should not be construed as an endorsement of the report’s recommendations. For more on The Globe’s disclaimers please read here. The following text is excerpted from the report:
We believe that the Chinese economy has bottomed. The upward momentum may not be strong, but stabilization itself would be good news, given how bearish market participants appear to be about China’s outlook.
Credit Suisse has developed a forward-looking momentum index, based on Premier Li Keqiang’s doctrine. The Credit Suisse Li Keqiang Momentum Index shows that the economy has bottomed and commercial activities have improved recently. This suggests that spikes in SHIBOR in June had little material impact on the real economy. The upward trend is consistent with our observations from the ground. The feedback we get from the corporate world is that sales are stabilizing. Our constructed industrial production measure flashes for an uptick too.
We think improved growth momentum can last as:
1) Housing policy is easing and sales are robust;
2) Local governments are investing again; and,
3) The export outlook has brightened, slightly.
None of the above-mentioned new supports to growth are robust. But they should support the cyclical upswing in a more sustained way than just a pure inventory correction.
But China is not out of woods yet, in our view. The core issue of the economy remains unaddressed – private investment is still missing. There is high hope that the third plenary session of the party congress could yield some concrete reform initiatives. We expect some broad policy initiatives to be revealed in October, but do not think concrete and actionable policies are likely.
We call for growth to stabilize, without much upside momentum. We revise up our forecasts for 2013 GDP growth to 7.6 per cent from 7.4 per cent and 2014 to 7.7 per cent from 7.6 per cent.
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