US experts positive on China's potential to weather external risks

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Amid rising protectionism in some major countries, China is well prepared and well positioned to ward off adverse impacts of external risks and shocks, including trade tensions, experts said to Xinhua in recent interviews.

This is because of China's effective control of capital accounts, hefty reserves of foreign exchange (forex), capacity to avoid overshooting in the banking system, resilient indigenous economy and significant progress made in deleveraging as well as ready policy tools at hand, they said.

Nimble government & controllable debts

"China has a high savings rate and its debt is predominantly domestical. And there's capital controls for outflows. So money does not just fly out like that in Russia or Brazil," said Tao Wang, chief China economist and head of Asia economic research with Union Bank of Switzerland (UBS), on Wednesday.

The Chinese banking system is unlikely to overshoot in a financial crisis as it is strictly controlled and would not allow the situation getting worse like in the 2008 financial crisis, said Wang at a media panel discussion.

China has quite a nimble government which is improving the economy's adaptive capacity and China's leadership will continue to make course-corrections when needed, according to Amy Celico, a principal of the consulting firm Albright Stonebridge Group.

Regarding the debt problem, Wang said that China has started to do deleveraging since 2016 and the share of debt to Chinese gross domestic product (GDP) in 2018 declined from the level around 2015 to 2016.

According to official data, the Chinese overall debt level in 2018 was 37 percent of GDP, for the third consecutive year less than the record of 38.9 percent in 2015.

China's debt ratio has long stayed lower than the 60-percent limit stipulated in the EU's Stability and Growth Pact and far below the 115.1-percent level for the Group of Seven developed economies.

Wang said China has done well in stabilizing growth and managing debts at the same time. "Today, the risk is substantially lower compared to 2016 because of what has already happened in China," she said.

Those deleveraging efforts mainly included tighter regulations on shadow banking, restructuring of bad debts, as well as a reduction of excess supply and excess capacity, according to the economist.

Tight control on capital account also helps China avoid a number of financial crises and China should not allow for free convertibility with a forex account, said Kai Lin, executive director of Emerging Market Asia Forex Trading at Standard Chartered Bank, recently.

Statistics show that China had 3.09 trillion U.S. dollars of forex reserves by the end of April 2019, with its holdings of forex remaining over 3 trillion dollars since 2011.

Increasing home growth momentum

Growth potentials and resilience of the Chinese economy stem from a mixed combination of effective fiscal and monetary policies, and the fact that the economy has become more consumption-oriented and less export-dependent, said Jorge O. Mariscal, chief investment officer for Emerging Markets at UBS Wealth Management.

Wang, the UBS economist, said she has noted the Chinese economic recovery since the start of this year, especially in the industrial and the property sector.

China's economy beat market expectations to advance 6.4 percent year on year in the first quarter, according to data from the National Bureau of Statistics.

A slew of international research institutions have raised their forecasts on China's economic growth. The International Monetary Fund revised its expectation for China's 2019 growth to 6.3 percent, up 0.1 percentage point from its previous estimation in January.

UBS also adjusted up its forecast of Chinese GDP growth from 6 percent to 6.4 percent for 2019.

Wang pointed out that China's growth has been more associated with domestic elements. "Consumer sentiment is improving. Property is improving."

In addition, the Chinese government's policy composition was more focused on tax cuts and support for the private sector, "more of a domestic component," Wang noted.

Referring to current U.S.-China trade tension, Wang said, "If the (additional) tariff goes from 10 percent to 25 percent on 200 billion U.S. dollars of Chinese goods, ... China will still have a decent chance of getting growth above 6 percent this year."

China is expected to resort to fiscal and monetary policy, promoting infrastructure and other fronts if trade tensions escalate further and it's unlikely to see the growth fall very sharply, Wang said.

Celico said that her company's biggest practice is focused on China as "American, European and Asian companies and non-profit (organizations) want to participate in China because of the potential there."

She attributed China's growth potentials to its large population, improving productivity, technology innovation, infrastructure and education development as well as untapped private sector. 

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