Economic views ranging far and wide

As 2014 begins, analysts' forecasts for China's economy are diverging more widely than ever. Some said growth is slowing and GDP will probably expand about 7.5 percent this year, similar to 2013. Others said economic growth will accelerate, assuming that the reforms the nation's leaders adopted during the Third Plenum of the 18th Central Committee of the Communist of China in November are carried out effectively. Speaking with China Daily on Monday on the sidelines of the annual Deutsche Bank Access China Conference in Beijing, Jun Ma, the bank's chief economist for greater China, said the key thing for investors to watch is whether the government continues to deliver on the Third Plenum's promise of "streamlining administration and relegating more central power". Ma, whose outlook for China is the most bullish among all international analysts so far, said the momentum of recovery that developed in the second half of 2013 is likely to continue and generate real GDP growth of 8.6 percent in 2014. He's sticking with that number, even though the government target, to be released in March during the annual "two sessions" (of lawmakers and political advisers), is likely to be much more moderate. Elaborating on his outlook, Ma particularly noted that, as one of the main problems in the economy, overcapacity in solar panels, cement, shipbuilding and steel has been tackled with an "iron hand" since late 2013. In the meantime, he said, many people have not paid enough attention to the fact that "serious" capacity shortages persist in some other key industries, such as medical care, railways, clean energy and environmental protection. Ma noted that even in the railway sector, where China has made immense investments in high-speed lines, China's per capita capacity is just one-eighth of the average of other major countries. In medical services, China's capacity ranks the lowest among all major countries. He noted that health authorities have promised access to investors from Hong Kong, Macao and Taiwan to open medical facilities on the mainland. If, as promised by the Third Plenum, the floodgates are opened for private investment in all industries lacking sufficient capacity, these sectors will achieve far more robust growth than ever before, Ma said. In an earlier report, Ma said that his "medium-term expectation" is that private capital will gain access to 80 to 90 percent of the industries still under investment restrictions in China. Other positive factors will be stronger recoveries in the United States and the eurozone and a rebound in external demand for Chinese exports. Domestic positives include increasing investment and higher velocity of money and a procyclical fiscal policy featuring government spending on infrastructure development. It's possible that if the government can truly implement its reform plans, growth from these forces can mitigate the main downside risks in the economy, Ma said. Beyond 2014, the Third Plenum's reform plans will govern China's growth prospects over the next two to three years. Also within three years, the renminbi should — beyond being more widely used in trade — become "basically" convertible for the capital account, Ma added. Separately, at a Shanghai conference held by UBS AG on Monday, Wang Tao, chief China economist of the bank, also forecast that China's growth will accelerate this year, up from an estimated 7.6 percent in 2013 to 7.8 percent year-on-year in 2014. The acceleration will be sparked by domestic consumption and external sales, she said, while investment will play a smaller role as a growth engine. She also stressed that, in the short run, the reform in streamlining the government and opening up the service sector will help China by promoting investment and creating jobs. In the long run, reform of the hukou (household registration system) and expansion of the social security network will fuel economic growth, Wang said. However, the most difficult job for China in 2014 will be to tackle the fast-growing off-balance-sheet financing of local government debt. Wang forecast that credit supply will grow at a slower pace this year than in 2013, as a result of the central bank's tougher supervision of shadow banking. The United States Federal Reserve Board's move to scale back its quantitative easing may also result in some capital flight from China. The People's Bank of China may have to use additional monetary tools, including a possible cut in banks' reserve ratios, to maintain liquidity, she said. But Wang dismissed concerns that China's financial reforms, such as the liberalization of interest rates, will restrain credit supply. Each bank's investors' conference attracted about 1,000 representatives of investment institutions from China and around the globe.