This week, economists speculated that the first quarter Chinese GDP growth may fall below the 7% target and the US softened its hardline stance on the Asian Infrastructure Investment Bank.
The 6% Handle?
Economists have estimated that China’s GDP growth in the first quarter may fall below 7%, the guideline rate set by Beijing last month. The latest economic indicator seems to point to the same direction: HSBC’s China manufacturing purchasing managers index, also known as the PMI, was 49.6 for March, below the 50.0 threshold that separates expansion and contraction.
China’s official PMI, however, rose moderately to 50.1 in March from the 49.9 reading in February. But economists believe the pickup is not enough to uphold a 7% quarterly growth, given weak data logged in previous months. “The economy is facing a lot of pressure downward, the first half’s GDP will quite likely be below 7%,” Zhang Zhiwei, Chief China Economist at Deutsche Bank, told CNBC.
The White Knight
Beijing stepped in again to help boost the property market, whose anemic performance has been a main cause of the country’s economic slowdown.
On Monday, People’s Bank of China (PBOC) announced that commercial banks can lower their required minimum down payment for second home purchases by 20 percentage points to 40%. Around the same time, the Ministry of Finance said that sellers of ordinary homes (as opposed to “non-ordinary homes”, which are above certain criteria such as area and price) can be exempted from a 5.5% business tax if they have owned their houses longer than two years. The previous threshold was five years.
While the new policies sent the major developers’ stocks’ prices up, analysts believe that they won’t change people’s overall expectation of the real estate market. “We expect the housing market correction will continue, but at a relatively modest pace through the course of this year,” Zhu Haibin, an economist at JPMorgan told Reuters.
Home prices in China were still going downhill in March, according to a couple of private surveys, reported South China Morning Post.
The Implicit Guarantee
China’s long-waited deposit insurance scheme will finally kick off in May, said the State Council on Tuesday. Under the new rules, each bank will guarantee up to RMB 500,000 for each of its depositors, according to authorities, and 99.6% depositors have less than that amount saved in one bank. Banks will have to get insured through a fund run by the central bank. It’s unclear yet how much the premium will be.
Unlike in many developed countries, Chinese depositors usually consider all their deposits guaranteed by the Chinese government, which can be risky in case of a major financial crisis.
The insurance scheme is the latest move by Beijing to further marketize the banking industry, which is still tightly controlled by the government. For example, PBOC still sets a cap for deposit rates for commercial banks in an attempt to keep lending rates in check. A deposit insurance system will hopefully help banks price risks better, preparing them for the final liberalization of deposit rates.
Very few investment banks have received as much media attention as the China-led Asian Infrastructure Investment Bank (AIIB). By Tuesday, the deadline set by Beijing to apply for the membership, 48 countries had signed up or announced their intent to do so.
While many leaders in both Europe and Asia welcome the bank, which aims to fund underserved infrastructure projects across Asia, some see it as a potential threat to the current world order—something they prefer to maintain.
Japan, which expressed interest to come on board last week, finally announced on Tuesday that it won’t be joining. Japanese Prime Minister Shinzo Abe reportedly said that “the United States now knows that Japan is trustworthy”, echoing the US’s prior demand that its allies should steer clear of the bank. However, Japanese leaders did not rule out the possibility of participating in the future, if the AIIB meets their standards.
The US has been in an awkward position since western countries like the UK and Germany candidly declared their interest in the China-led initiative. But as more nations abandoned ship, the US officials softened their words—and stance—too. US Treasury Secretary Jack Lew told the Asia Society upon returning from his China visit that “we welcome China having a significant role in the global economic and financial architecture”. Catherine Novelli, US Under Secretary of State for Economic Growth, Energy and the Environment, said on CNBC that “we support the AIIB’s goal (toward infrastructure development)… and we want to partner with the AIIB through other multilateral development banks to ensure that all these build-outs can happen and they happen in a good way.”