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Barclays Sees 'Green Shoots' In China

Barclays Capital, one of the largest investment banks in the world, says there are signs of life in China's struggling economy.

Barclays Capital has been saying the Chinese economy would bottom in the second quarter, and as China heads into the third quarter this week, Barclays says it sees some green shoots sprouting up in the cracked earth.

Though most lagging indicators, such as profits and unemployment, are still weakening in China and some coincidence indicators, such as investment, consumption, production and exports, remain mixed, some forward-looking indicators already show signs of improvement.

China’s State Information Center (SIC) constructs its own leading indicator, which is a seasonally adjusted composite index of consumer expectations, the industrial sales/production ratio, money supply, A-share market turnover, funds used for industrial products, new residential home starts, and the logistics index. The leading indicator increased in May and June.

Most Chinese officials share the view that the economy needs to tolerate slower growth in order to facilitate the transition of the country’s economic development pattern. Hu Jintao continues to beat the drum of sustainable growth, somewhere between a low of 7 percent to a moderate 8 percent print in the country’s GDP. Anything below 7 percent in China is considered by most economists to be a hard landing.

The 4 trillion yuan stimulus package announced in 2008 was successful in terms of lifting growth. But it generated a long list of consequences, including massive credit expansion, large local government borrowing, asset bubbles, and overcapacity in some infrastructure areas. These problems are clearly behind the change of policymakers’ mindset in favor of sustainable growth.

It might be better for China to accept slow growth and continue to focus on rebalancing and restructuring its growth model.

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Forbes, June 1^st, 2012

NOTES

1. A-shares – акции, котирующиеся на биржах Китая в юанях