China: Rising challenges to trigger further policy easing – Deutsche Bank

By FXStreet FXStreet (Delhi) – Zhiwei Zhang, Research Analysts at Deutsche Bank, suggests that after China’s economy had a tough year in 2015. 2016 will likely be even more challenging.

Key Quotes

“The current round of policy easing may help to boost growth in Q4 2015 and Q1 2016, but it will exacerbate overcapacity and raise leverage, both are damaging in the long term. In mid-2016 the government may face a policy dilemma again. Downside pressure on growth may resurface, and pressure the government into further policy easing.

Growth will likely stabilize in 2016Q1

The economic difficulty that troubled China for most of 2015 may be arrested temporarily in Q1. The difficulty in 2015 was to some extent due to a large fiscal contraction caused by the decline of lands sales revenue in H1.

Growth of infrastructure investment may pick up again as land sales help boost fiscal revenue. Property and infrastructure combined account for almost half of investment in China. Hence we expect investment growth may pick up modestly in Q4 2015 and Q1 2016.”
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Source:: FX Street