Amid signs of a downturn, a global financial industry survey shows a pessimistic outlook for the mainland economy in the next five years
Bloomberg in Washington 09 December 2011
Most global investors predict China will face a banking crisis within the next five years, paring their appetite for the nation’s shares and eroding confidence in its leadership, a Bloomberg global poll indicated.
Sixty-one per cent of respondents said they anticipated a crash in the financial industry by late 2016, and only 10 per cent were confident mainland banks would escape trouble, according to the quarterly poll 1,097 of investors, analysts and traders who are Bloomberg subscribers conducted this week.
Evidence of slowing growth in China - including the weakest manufacturing performance in more than two years, falling home sales and ebbing export growth - has stoked concern that non-performing loans will climb in the world’s second-largest economy. The risk is a legacy of a record 17.6 trillion yuan (HK$21.5 trillion) lending boom unleashed by Premier Wen Jiabao in 2009-10 amid the global recession.
“The deep-seated misallocation of resources, particularly in the real estate and banking, will lead to a combination of political and economic instability,” said Lance Depew, the managing director of UPI Management in Santa Barbara, California, and a poll participant.
The MSCI China/Financials Index of shares has fallen 22 per cent this year, underperforming the broader MSCI China Index, which is down 17 per cent. China Life Insurance has dropped 32 per cent and Bank of China 30 per cent, adding most to the financial index’s losses.
Enthusiasm for Chinese stocks has flagged among Bloomberg users. In the latest poll, 21 per cent called China one of the best places to invest over the next year. That was less than half the 44 per cent who named China in an October 2009 survey.
Thirty-five per cent of respondents said they expected China’s economic growth to slow to less than 5 per cent from the 9.1 per cent pace recorded in the third quarter. Thirty-one per cent anticipated “serious political or economic instability that stalls growth”. US investors were the most pessimistic, with 40 per cent expecting a Chinese crisis.
Some 46 per cent of investors described the Chinese economy as “deteriorating” - up from 38 per cent in September - compared with 40 per cent who said it was “stable”.
The scepticism contrasts with the outlook of economists from Goldman Sachs and the International Monetary Fund, who predict China will avoid a growth slump while defusing inflation. Goldman, in a December 1 report, projected the nation’s gross domestic product would rise 8.6 per cent next year and 8.7 per cent in 2013.
A relatively low central government debt burden gives Wen’s administration the fiscal wherewithal to address a jump in non-performing loans.
The World Bank said last month that while China faced the risk of a “strong” impact from a real-estate correction, it had “ample” scope to cushion its economy. Policymakers have begun responding, with the People’s Bank of China last week lowering banks’ reserve requirements for the first time since 2008.
“China, simply put, is the best managed major economy on the planet,” said Anthony Stephens, an equity trader with Standard Chartered Bank in Hong Kong.
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Investors say China heading for crisis
Amid signs of a downturn, a global financial industry survey shows a pessimistic outlook for the mainland economy in the next five years
Bloomberg in Washington
09 December 2011
Most global investors predict China will face a banking crisis within the next five years, paring their appetite for the nation’s shares and eroding confidence in its leadership, a Bloomberg global poll indicated.
Sixty-one per cent of respondents said they anticipated a crash in the financial industry by late 2016, and only 10 per cent were confident mainland banks would escape trouble, according to the quarterly poll 1,097 of investors, analysts and traders who are Bloomberg subscribers conducted this week.
Evidence of slowing growth in China - including the weakest manufacturing performance in more than two years, falling home sales and ebbing export growth - has stoked concern that non-performing loans will climb in the world’s second-largest economy. The risk is a legacy of a record 17.6 trillion yuan (HK$21.5 trillion) lending boom unleashed by Premier Wen Jiabao in 2009-10 amid the global recession.
“The deep-seated misallocation of resources, particularly in the real estate and banking, will lead to a combination of political and economic instability,” said Lance Depew, the managing director of UPI Management in Santa Barbara, California, and a poll participant.
The MSCI China/Financials Index of shares has fallen 22 per cent this year, underperforming the broader MSCI China Index, which is down 17 per cent. China Life Insurance has dropped 32 per cent and Bank of China 30 per cent, adding most to the financial index’s losses.
Enthusiasm for Chinese stocks has flagged among Bloomberg users. In the latest poll, 21 per cent called China one of the best places to invest over the next year. That was less than half the 44 per cent who named China in an October 2009 survey.
Thirty-five per cent of respondents said they expected China’s economic growth to slow to less than 5 per cent from the 9.1 per cent pace recorded in the third quarter. Thirty-one per cent anticipated “serious political or economic instability that stalls growth”. US investors were the most pessimistic, with 40 per cent expecting a Chinese crisis.
Some 46 per cent of investors described the Chinese economy as “deteriorating” - up from 38 per cent in September - compared with 40 per cent who said it was “stable”.
The scepticism contrasts with the outlook of economists from Goldman Sachs and the International Monetary Fund, who predict China will avoid a growth slump while defusing inflation. Goldman, in a December 1 report, projected the nation’s gross domestic product would rise 8.6 per cent next year and 8.7 per cent in 2013.
A relatively low central government debt burden gives Wen’s administration the fiscal wherewithal to address a jump in non-performing loans.
The World Bank said last month that while China faced the risk of a “strong” impact from a real-estate correction, it had “ample” scope to cushion its economy. Policymakers have begun responding, with the People’s Bank of China last week lowering banks’ reserve requirements for the first time since 2008.
“China, simply put, is the best managed major economy on the planet,” said Anthony Stephens, an equity trader with Standard Chartered Bank in Hong Kong.
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