September 11, 2013 / 8:31 AM / in 4 years

Banks raise China growth forecasts, but flag unaddressed risks

By Kevin Yao
    BEIJING, Sept 11 (Reuters) - Investors are confident China
has put a floor under a protracted slowdown for now and will
meet the government's growth target for 2013, but analysts say
the trade-off is a delay in addressing imbalances in the world's
second-largest economy.
    Several investment banks upgraded near-term forecasts for
China's growth after a run of strong data for August, including
factory output and exports, and many now have full-year growth
above the official target of 7.5 percent.   
    UBS, Deutsche Bank, CICC and Nomura were among the banks to
upgrade their growth forecasts for 2013 after the recent data,
and now all have it 7.6 percent or higher.
    Only a few weeks ago, there were fears such growth -- which
would be the slowest in more than two decades -- was out of
reach as officials tried to shift the economy away from a
dependence on exports and investment towards consumption-led
    But some now worry the upturn has been driven by investment
and property on a revival of so-called shadow banking in August,
as cash conditions improve after a credit crunch in June when
the central bank had tried to curtail risky lending by banks.
    "We note that the fundamental challenges facing the Chinese
economy -- industrial sector overcapacity, latent property
bubble, financial risks amid lower potential growth -- have not
been resolved," said Jian Chang, China economist at Barclays
Capital in Hong Kong in a research note.
    "And in fact, any strong pick-up in infrastructure and
property investment growth now may mean a further worsening of
the imbalances, and thus, a further delay in moving the economy
on to a more sustainable path."
    Indeed, some economists at government think-tanks believe
Premier Li Keqiang will cut the growth target to 7 percent in
2014 at the annual meeting of parliament next March.
    The economy grew 7.7 percent in 2012, the weakest pace since
    Some analysts said the People's Bank of China seemed to have
quietly opened the credit tap after the liquidity crunch, to
ensure the economy's slowdown would not be sharper than expected
in the run-up to a top-level government meeting on economic
reforms in November. 
    PBOC data showed a near doubling of the total social
financing aggregate -- a broad measure of liquidity -- to 1.57
trillion yuan ($257 billion) in August from July.
    "Banks are back on the old road -- they have started to
expand their lending and other business activity as the central
bank eased up its controls," said You Hongye, an economist at
Essence Securities in Beijing.
    "The possibility of tightening liquidly in the near term
looks small, they can only tighten gradually. The root cause of
the shadow finance of government infrastructure investment and
property, you cannot choke it off," he said.    
    Revised forecasts for Q3, 2013 and 2014
                   Q3              2013             2014    
                 New    Old       New     Old       New    Old
    UBS          7.7    7.5       7.6     7.5               
  Deutsche       7.9    7.7       8.0     7.8       8.6    8.5
    CICC         7.8    7.6       7.6     7.5       7.4    7.3
   Nomura                         7.6     7.5       6.9    6.9
 ($1 = 6.1200 Chinese yuan)

 (Editing by John Mair)

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