Home / Knowledge / News / Textiles / 'China needs to solve 3 economic puzzles'
'China needs to solve 3 economic puzzles'
26
Feb '16
Courtesy: Morgan Stanley
Courtesy: Morgan Stanley
For much of the past year, China’s market volatility has kept global investors on tenterhooks.

According to a report by Chetan Ahya, Morgan Staley’s co-head of global economics and chief Asia economist, from a macroeconomic perspective, three policy dilemmas are at the heart of the debate over how China’s policy makers steer the economy in this phase of transition: High Growth vs. Return on Capital, Slower vs. Faster Cuts to Excess Capacities and Monetary Easing vs. Currency Depreciation

Traditionally, policy makers in China have operated with a growth target to guide decisions. In its 13th Five-Year Plan, announced late last year, the government maintained its goal to double GDP and disposable per-capita income by 2020, from 2010 levels, implying annual GDP growth of around 6.5 per cent.

“We believe that 6.5 per cent average annual GDP growth over the next five years will be a challenge, given what’s likely to be weak support from external demand (structurally slower developed-market growth outlook), decline in its working-age population from 2016, high levels of corporate debt, and the starting point of excess capacity in old economy sectors,” Ahya said in the report “Sunday Start” (Feb 21, 2016).

“Moreover, targeting a relatively high rate of growth will mean having to keep investment-to-GDP ratios relatively high, at the cost of weak capital productivity and poor returns on capital employed. Indeed, we estimate that, at current GDP growth rates, for China to achieve the same capital efficiency it did from 2000 to 2007, the optimal level of investment-to-GDP should be around 24 per cent, instead of its estimated 42 per cent in 2015.

According to the report, high levels of investment to GDP, against a backdrop of structurally slower export growth and weakening demographic trends, have led to a buildup of excess capacities and deflationary pressures since the credit crisis began. Producer prices and the GDP deflator, which have fallen 46 months and 12 months, respectively, are the clearest indicators of the overcapacity challenge.

“Policy makers have signaled that they intend to address these issues. The key question, however, is the pace of adjustment they will adopt. Considering the scale of excess investments, a faster pace of cutting excess capacities and recognizing nonperforming loans could carry social-stability risks (potential sharp rise in unemployment) and an elevated risk of a near-term financial shock,” Ahya wrote.

However, opting for a more gradual pace of adjustment will mean that deflationary pressures could become generalized and entrenched.

The report noted that against the backdrop of a weak productivity trend, private corporate capital expenditure has been slowing, adding to growth headwinds. This, coupled with the persistence of deflationary pressures, has meant that nominal GDP growth in China had slipped to a post-credit-crisis low of 6 per cent in the fourth quarter of 2015, from an average of 18.5 per cent four years back.


Must ReadView All

ITC, ICS tie up to help Moroccan textile value chain

Textiles | On 21st Apr 2018

ITC, ICS tie up to help Moroccan textile value chain

The International Trade Centre (ITC) has partnered with ICS, which...

Bangladesh garment manufacturers call for fair pricing

Apparel/Garments | On 21st Apr 2018

Bangladesh garment manufacturers call for fair pricing

Bangladesh garment manufacturers want a ‘commensurate adjustment’ by...

Pak ministry proposes extension to PM package for 2018-19

Textiles | On 21st Apr 2018

Pak ministry proposes extension to PM package for 2018-19

Pakistani textile ministry has reportedly proposed extending the...

Interviews View All

Karel Williams
Dow Microbial Control

'Silvadur is most rapidly adopted in areas where hygiene-conscious and...

Mukesh Agarwal & Rajesh Agarwal
Madhuram Fincap Pvt Ltd

Increasing prices and lack of demand main issues facing industry

Cyril Pereira
Reed Exhibitions India, organiser of Asian Machine Tool Exhibition 2016

'Major problem in the textile machinery manufacturing industry is the lack ...

Sugandha Bhardwaj

<div>New Delhi-based Brinjal Designs Pvt Ltd manufactures home furnishing...

Rikesh Mistry

Jupiter Comtex Pvt Ltd, established in 1973, started its textile machinery ...

Tejas N Patel, Navin D Patel

Founded in 1999 by Navin Patel in the name of Tejas Fabrics with 100...

Lynda Kelly
Suominen Corporation

Suominen Corporation is a manufacturer of nonwovens as roll goods for...

Giorgio Mantovani
Corman S.p.A

Giorgio Mantovani, MD of Corman, with a presence in both Milano and New...

Iago Castro Asensio
RCfil Distribuciones S.L.

Iago Castro Asensio, International Business Manager of RCfil...

Sonam & Paras Modi
SVA

Sonam and Paras Modi's Sva Couture is synonymous with head-turning...

Akta Adani
India Boulevard

India Boulevard is a San Francisco-based curated fashion marketplace that...

Amiben Shroff
Shrujan

From its modest beginning in the late 1960s, Shrujan has grown into a...

Press Release

Press Release

Letter to Editor

Letter to Editor

RSS Feed

RSS Feed

Submit your press release on


editorial@fibre2fashion.com

Letter To Editor






(Max. 8000 char.)

Search Companies





SEARCH

Leave your Comments


April 2018

Subscribe today and get the latest update on Textiles, Fashion, Apparel and so on.

news category


Related Categories:

Planning to Take the Leap towards
Sustainability?

Do you see sustainability as a route to business growth?

Yes No

Do you think the sustainability space has the needed tools and resources available for a business to lead change?

Yes No

Active Poll

Do you see sustainability as a route to business growth?

Yes
69.9%
No
12.6%
Skip
17.5%

Total Votes: 103

Do you think adopting a sustainable approach will be a profitable move for your business?

Yes No

Active Poll

Do you think the sustainability space has the needed tools and resources available for a business to lead change?

Yes
63.1%
No
29.1%
Skip
7.8%

Total Votes: 103

Do you want the world to know about your sustainability journey and your business’ environmental footprint?

Yes No

Active Poll

Do you think adopting a sustainable approach will be a profitable move for your business?

Yes
87.4%
No
8.7%
Skip
3.9%

Total Votes: 103

Thanks for your valuable feedback. Claim your free latest sustainability e-book.

Active Poll

Do you want the world to know about your sustainability journey and your business’ environmental footprint?

Yes
82.5%
No
7.8%
Skip
9.7%

Total Votes: 103


E-News Insight
Subscribe Today and Get the
Latest News Update in Your Mail Box.
Advanced Search