China's new normal
- By Dan Steinbock
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E-mail China.org.cn, October 1, 2014
"New normal" in the short-term
For months, President Xi Jinping has been saying that China must adapt to a "new normal." In the short-term, China's new economic era will be characterized by slower growth, painful restructuring and conflicting responses from the market as it digests government stimulus.
During the past few quarters, Premier Li Keqiang has sought to manage housing market volatility while continuing to deleverage local governments. This is a precarious balancing act.
If deleveraging moves ahead too aggressively, housing sales will suffer. If deleveraging is too slow, it will continue to boost housing markets artificially, giving rise to new bubbles.
The efforts to tame the volatile housing markets and the deleveraging of local governments share a common denominator. Both represent huge economic reforms, which are vital to supporting China's shift toward a post-industrial society.
So where is the Chinese economy in terms of housing markets, deleveraging and reforms?
Despite the relaxation of curbs in a number of major cities to stimulate demand, the downturn in the property market is putting increased pressure on local governments, banks, and developers.
Even as Beijing seeks to ensure infrastructure investment, the huge process of local and regional government (LRG) deleveraging is under way. In mid-2013, LRG debt amounted to some $1.8 trillion, which accounts for some 20 percent of GDP.
Meanwhile, Beijing is restructuring Chinese public finance. As reforms are implemented gradually, debt growth is expected to be about the same as nominal GDP growth - around 10 percent - during the next three years. Thereafter, debt growth should begin to decline.
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