Steady growth in prospect
China’s Third Plenum outlined key economic reforms for the rest of this decade. The markets will be given a “decisive role” in allocating resources, with the 50% limit on private ownership in state-owned enterprises likely to be lifted and more private participation in the banking sector. There will be greater property and social security rights for rural residents, with changes to household registration, the so-called “hukou” system, and land reform.
Steady growth has continued into Q4 2013, but investment remains the main driver. The key question is whether more of this investment is being generated by the private sector, which accounts for the majority of China’s employment.
Given the improved outlook for the domestic economy, we expect GDP growth of 7.3% in 2014. But as the economy shifts toward more consumption and less credit-fuelled investment, we expect annual growth to be 7.2% a year from 2015-17.
The financial sector has shown renewed signs of stress. The continued strong issuance of wealth management products means that there are still risks from property and shadow banking crises.
In Hong Kong, trade-related services will be constrained in the near term by a relatively weak global economy. Meanwhile, financial services will face headwinds from a less expansionary US monetary policy. But domestic spending will offer support and construction should improve in 2014. Furthermore, Chinese trade flows should pick up gradually.
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