Pessimism towards the Chinese economy intensified following this week's release of official GDP numbers, although JP Morgan Asset Management argues the negativity is "overdone".
JP Morgan Asset Management vice president, Kerry Craig, said that the official GDP numbers which were released by China on Tuesday – 6.9 per cent GDP growth for 2015 and 6.8 per cent for the fourth quarter of 2015 – show that China’s economy is “slowing but not collapsing”.
Speaking in Sydney yesterday, Mr Craig said there are multiple “overlooked positives in the Chinese economy”.
Mr Craig pointed out that a “two speed economy” is developing within China. For example, while industrial production has slowed, retail sales have risen considerably.
Recent research conducted by the asset management firm found that industrial production increased by 5.8 per cent as at November 2015, while retail sales grew by 11 per cent.
“There’s still a large portion of the Chinese economy, that is consumption and is services, that are still working quite well,” said Mr Craig.
“And that’s potentially enough to offset some of the slowdown in the manufacturing industrial sector,” he said.
Mr Craig argued that while the Chinese economy is both changing and slowing, "it's just not going to collapse in our view".
According to HSBC Global Research, slower growth means that China will need to adopt further reflationary policies.
"Both monetary and fiscal easing measures are needed to help support demand and anchor expectations," HSBC said.
In line with Mr Craig's expectation of further monetary easing, HSBC forecasts a 25 basis points policy rate cut and a 100 basis points cut in the reserve requirement ratio (RRR) in the first quarter of 2016.
"But in order for policy easing to have the desired impact, policy response should be pro-active, coordinated and better communicated in order to reverse the slide in private sector confidence and stabilise market expectations," the update said.
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