Credit Suisse said the drag factors occurring around the Chinese New Year have ended and that recent strength in automobiles and consumer electronics have boosted in order flows after a period of destocking.
Export orders have also gathered some momentum after quite soft flows in the first quarter of 2014, according to Credit Suisse.
The Li Keqiang Momentum Index shows the Chinese economy is currently growing at a pace of 6.7 to seven per cent.
Credit Suisse noted, however, that this projection is still slightly short of the government’s growth target of around 7.5 per cent and that economic momentum is weak by Chinese standards.
“The core issue in the economy is that private investment has disappeared,” said Credit Suisse.
“It would still take structural reforms, especially breaking the SOE monopoly in the service sector, to re-engage the investment interest from the private sector, in our view.”
Credit Suisse believes GDP growth will be 7.1 per cent on an annualised basis for the second quarter of 2014 and then seven per cent for the remaining two quarters.
Credit Suisse said that credit events in the second half of this year could be a concern, with local government debt maturing this year and RMB$2.3 trillion in trust funds maturing in the second half of 2014.
“While Beijing has taken several measures in an attempt to bring local debt to the public domain, with improved transparency and lower funding costs, we do not believe that enough has been done to prevent possible tail risks, in the event of some defaults in the shadow banking areas,” said Credit Suisse.
“That risk has not diminished in our opinion, despite a slightly brighter growth outlook.”
Credit Suisse said that cash flow among “local governments, property developers and private entrepreneurs seems to be deteriorating rather than improving”.
