China is likely to begin building out its financial services infrastructure as part of its effort to shift the economy from output to consumption and restart economic growth, says AXA Investment Managers.
Mark Tinker, AXA Investment Managers fund manager, said long-term investors should look to key policy targets which are set to be announced at the National People’s Conference later this month.
According to Mr Tinker, statements regarding targets for growth in disposable income per capita of urban residents will be more interesting than the GDP figure.
“As are binding targets for things such as basic health schemes and basic pension schemes,” he said.
“Building out a financial service infrastructure is not stated explicitly but is clearly part of a plan, as is liberalising the capital account such that joining the special drawing rights (SDR) is a key policy measure.”
Mr Tinker said that China's reforms don't have to be liked by investors, but their motivations need to be understood.
“Those in the west calling for Quantitative Easing (QE) and an immediate opening up of the capital account in order for China to stimulate global growth are missing a key point: China has no obligation to help the rest of the world grow.”
China is entering a new growth phase and is unlikely to be influenced by external lobby groups, he said.
Mr Tinker also noted that state-owned enterprise reform (SOE) will remain a focus.
The policy directed towards SOEs is likely to focus on allowing SOEs to “wither way as the new economy embraces services”.
“Meanwhile, technology, infrastructure, anti-pollution and anti-corruption remain key underlying thematics, plus of course the broader regional spending on infrastructure generally under the ‘One Belt One Road’ policy,” said Mr Tinker.
Commenting on broader economic trends, Mr Tinker said that going forward, the significance of monetary policy is likely to weaken and be replaced by a focus on fiscal policy.
“Of broader significance in my opinion is the sense that I am starting to get that politicians everywhere are becoming disillusioned with the ability of monetary policy to solve all their economic problems and are turning to more conventional measures such as trade agreements and, in particular, I suspect infrastructure spending, to provide jobs and growth.
“With the monetary policy experiment regarded as a failure, fiscal policy is about to have its day,” he said.
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