China economy to attain high income status by 2027

epa04899992 (FILE) A file photo dated 06 July 2011 showing an exterior view of the headquarters of the People's Bank of China (PBOC) in central Beijing, China. Chinese stocks rebounded from five days of decline on 27 August 2015, with the benchmark Shanghai Composite Index bouncing back above the symbolic 3,000-point mark. The index finished at 3,083.59, surging 5.34 per cent from Wednesday's 2,978.03 after a raft of stimulus measures. China's central bank on Thursday pumped a further 150 billion yuan (23.4 billion dollars) into the market, the Xinhua news agency reported. The People's Bank of China spent the money on seven-day reverse repurchase - repo - agreements, buying securities from banks and agreeing to sell them later for a higher price.  EPA/PETER TREBITSCH HUNGARY OUT



China will likely avoid a financial crisis and is on track to reach high income status by 2027, according to a new Morgan Stanley report on the nation’s longer-term prospects titled “Why we are bullish on China.”
The sweeping outlook comes amid growing concern over China’s surging debt levels, slow pace of reforms and the impact of a potential trade spat with the US while acknowledging those concerns as legitimate, the analysts point to the country’s increasing shift into high value-added manufacturing and services that will play a central role in boosting per capita incomes to $12,900 over the next decade from $8,100 now.
If China manages to pull off that feat, it will join South Korea and Poland as the only large economies with a population of over 20 million to achieve that over the past three decades, Morgan Stanley said. The World Bank defines high-income economies as those with a gross national income of at least $12,476 per person.
There are other positives, too. Consumption and services are increasingly powering growth and proposed structural reforms such as the closure of uncompetitive state-owned enterprises will clear the way for new, high-value added industries in areas such as health care, education and environmental services, according to Morgan Stanley. That would spur the creation of a new generation of Chinese multinational corporations with significant presences both at home and abroad.

Low Risk
At the same time, the risk of a financial shock remains low even though overall debt soared to 279 percent of the economy last year from 147 percent in 2007. That’s because borrowing has been funded by China’s own savings and been used for investment. Strong net asset positions provide a buffer along with an ongoing current account surplus, high foreign reserves and the absence of significant inflationary pressures that would destabilize the financial system, according to the report.
A one-off devaluation of the yuan is also unlikely though the currency will likely weaken further, according to Morgan Stanley.
Indications that China’s leadership are shifting their focus from stimulating the economy to reining in financial risk bolsters their upbeat case, the analysts said.
“The most significant development on the policy front is that policy makers are now signaling a willingness to accept slower rates of growth, and place more focus on preventing financial risks and asset bubbles, indicating that they would not protect growth at all costs, often with the use of investment of a low return nature,” the analysts wrote.

Debt Pile
Still, there are risks. Much will depend on the commitment to tackling the debt pile and reshape state-owned enterprises.
It’s likely that China’s debt management will follow a path similar to Japan’s, although economic growth will compound at a much higher rate over coming years. Morgan Stanley sees growth at an average of 4.6 percent in 2021-2025. That’s less than half the 9.6 percent average growth rate over the past three decades.
“With a starting point of lower debt, (China’s debt to GDP today is where Japan’s was in 1980) and per capita levels (China’s per capita GDP (PPP) today is where Japan’s was in the mid-80s),” the analysts wrote. “By not allowing for a sharp appreciation of its currency as Japan did after the Plaza Accord, China today is arguably better positioned to still achieve growth rates that can outpace global growth.”

Leave a Reply

Send this to a friend