China Macro View(中国宏观经济展望）.pdfVIP

China Macro View Economic Prospects for 2015 Beyond: New Normal, New Cycle  Entering into a new cycle of 6-7% growth – China’s balancing on the steep and narrow path between growth and reform has lately swung to the growth side, aligning with the outlook for low inflation, lower rates and weaker RMB in 2015. This could begin a seven-year new cycle during which GDP growth will likely fall into a range of 6-7%, a consensus gradually established among China’s political, economic and market investors. While 2014 has proved to be a year of hesitant stimulation and slow-motion reform, recent policy-rate cuts with another step of interest rate liberalization have set the stage for a possible combination of more aggressive easing (e.g., two more rate cuts) and decisive reform (led by fiscal reform) in 2015 to achieve around 7% growth.  Four emerging trends – By calling for a new normal, Chinese leaders have hinted that China would abandon the old normal, characterised by over-leveraging and excessive capacity. We expect 1) banks, PPP and the bond market to share the funding needs of about Rmb7tn as local government de-levers in 2015; 2) SOEs going “asset light” could liquidate or securitize trillions of assets going forward; 3) China’s nominal GDP may be scaled up by 2.5-5% after the change in the GDP calculation method next year and the service sector should outperform; 4) “going overseas” will likely be gradual and start first in those countries with strong infrastructure demand and trade surpluses with China.  Policy breakthroughs possible, led by fiscal reform – China’s reform seems crisis-driven, possibly trigger