Date
25 September 2017
The central bank should press ahead with a long-awaited reform of the exchange rate regime, according to an economist. Photo: Bloomberg
The central bank should press ahead with a long-awaited reform of the exchange rate regime, according to an economist. Photo: Bloomberg

JP Morgan: China economy likely to grow 7.2% in 2015

China’s gross domestic product (GDP) growth is likely to hit 7.2 percent next year, with consumption contributing 3.4 percentage points, investment 3.1 percentage points and net exports the rest, JP Morgan said Monday.

Zhu Haibin, JP Morgan chief China economist, said the projection is consistent with estimates of 7.1 percent GDP growth by the People’s Bank of China (PBoC).

JP Morgan said China’s growth drivers are not expected to change much in the near term, with a relatively stable service sector expected to continue to play a significant role.

Zhu said major risks for 2015 will come from a slowdown in real estate investment growth, a weakening renminbi against the US dollar and local government debt.

Also, efforts to attract private investment in the government’s public-private partnership program will be key.  

A 5 percent fall in real estate investment could knock 0.6 percent off GDP growth, he said.

Zhu said investment growth in the sector fell to 11 percent this year from 20 percent in 2013.

It’s estimated to fall further to 6 percent in 2015, shaving nearly 2 percentage points off economic growth.

Zhu expects the downtrend to continue but said a collapse is unlikely.

Overall property prices to come down 5 percent to 10 percent from their April 2014 peak, with the bottom expected in late 2015.

Zhu said next year will be a tough one for Chinese regulators in terms of fiscal policies, especially on the renminbi exchange rate.

He warned of a currency war if emerging countries follow Japan and the European Union in allowing their currencies to depreciate against the US dollar.

The renminbi’s real effective exchange rate could top expectations if the PBoC keeps the nominal exchange rate with the US dollar stable while the greenback strengthens, he said.

“It would be good timing for the PBoC to push forward the long-awaited reform of the exchange rate regime,” he said.

He said the plan is to float the renminbi and allow it to be traded against a basket of currencies. 

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EJ Insight reporter

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