GLOBAL INSIGHTS

China’s tricky
economic transition

Signposts to watch in its economic evolution
01 mar 2017 / por BlackRock Investment Institute

China’s debt-driven growth model is starting to reach limits. Yet the country is also transitioning into a high-tech, more consumer-driven economy. Investors tend to only focus on China when they perceive trouble, but we believe now is a good time to consider the opportunities. 

Drawing on the insights of BlackRock’s investment professionals, we assess the economy’s state of play and give a framework for understanding its challenges. The map and statistics below show just how important China has become for the global economy.

Highlights

  • We see scope for China’s cyclical rebound to strengthen. Our proprietary GPS gauge is pointing to a positive growth outlook in China, just as supply-side reforms and capacity cuts improve industrial profitability. We like Chinese equities and see the yuan steadying on a trade-weighted basis.
  • We believe the risk of a debt crisis is limited in the short run. We dig into the factors driving China’s debt dynamics and outline reasons why the country could avoid a crisis in the next year or two. We do see the problem only getting worse the longer it drags on.
  • We do see other near-term risks. First and foremost, a potential trade war with the U.S. could undercut the recovery. Second, risks of temporary credit crunches are rising as China’s central bank has started a targeted policy tightening to curb financial system leverage.
  • We score China’s reform progress and provide a framework for assessing whether it is getting on a sustainable economic path. We highlight three key signposts: China’s ongoing capital outflows, potential interbank financing strains and the rising share of consumption in economic growth.

Understanding China
Selected Chinese and global metrics, 2013-2016

Selected Chinese and global metrics, 2013-2016

China vs U.S. metrics chart. China vs world metrics chart.

Sources: BlackRock Investment Institute, World Bank, European Commission EDGAR, eMarketer, BP, OICA, EIA, Thomson Reuters and IMF.
Notes: the GDP and e-commerce data are for 2016, with GDP based on IMF forecasts. Population, oil consumption, exports, GDP growth share, car production, market capitalisation, cellular subscriptions, internet users and military expenditure are based on 2015 data. Metals imports, CO2 emissions and life expectancy are based on 2014 data. China highspeed rail distance are based on 2016 reports by China Railway Corp. US high-speed rail distance are based on sections of the Acela Express where speeds exceed 120 mph. China’s first aircraft carrier was reported as combat-ready in late 2016.

 

DOWNLOAD FULL REPORT

Head of Active Investments for Asia Pacific
Belinda Boa is responsible for delivering investment excellence and investment success in the region both internally and externally.
Head of Active Investments
BlackRock Asia Pacific
Isabelle Mateos y Lago
Chief Multi-Asset Strategist
BlackRock Investment Institute
Economic and Markets team
BlackRock Investment Institute
Head of Asian Credit
BlackRock Asia Pacific Active Investments
Head of China Equities
BlackRock Active Equity Group