Chinese GDP growth slowed to 7.7% in 2013, which was the lowest level since 1999.
And as policymakers move to tighten credit and lending standards, almost everyone agrees that the economy will decelerate further. Indeed, weakness in the Chinese economy is part of the reason we’ve seen a rout in emerging markets.
The consensus of economists polled by Bloomberg is for 7.4%.
But Deutsche Bank’s Jun Ma expects the Chinese economy to accelerate 8.6% this year, making him by far the most bullish forecaster.
Some have argued that Ma’s bullish predictions were setting him up for a spot at the People’s Bank of China. And now Simon Rabinovitch of the Financial Times is tweeting that the economist is reportedly moving to the central bank.
Much of Ma’s rosy outlook is tied to his optimism regarding credit.
The latest government debt audit showed showed Chinese local government debt totaled 17.9 trillion renminbi ($2.8 trillion), and that total government debt reached 30.3 trillion renminbi (approx $US5 trillion). Most experts agree that Beijing’s efforts to engineer deleveraging, if anything, could actually lead to a hard landing in China. In this scenario, growth decelerates sharply below that 7% or even 6% level.
Jun thinks both the local and central government debt are “manageable”. He also doesn’t think that debt management reform wil lead to a “decline in local government capex in our view.”
“Many investors fear that the publication of the [National Audit Office] audit report as well as the government’s rhetoric of strengthening local government debt management will lead to a sharp decline in local government spending on infrastructure and thus downward pressure on the economy,” writes Jun. “We believe this concern is excessive.”
He points out that the National Development and Reform Commission (NDRC) is letting local government finance vehicles (LGFVs) issued bonds to finance existing debt to ensure that projects that are already underway have their funding requirements met.
“We believe that steady economic growth and meeting the infrastructure demand for urbanization are the priorities of the government,” he writes.
“Local government capex will likely rise, and probably accelerate, in 2014 as government revenue growth has improved significantly in the past few months and bond financing (but not bank loans) will continue to support local infrastructure spending.”
And there you have it folks. Time will tell if he’s right.