RBS forecasts no massive stimulus in China

17  January 2013

BEIJING — China’s economy will post a 7.5-8 percent growth this year and next year, with policy easing but no game-changing stimulus package, according to a forecast by the Royal Bank of Scotland.

China’s gross domestic product value will expand by 7.5 percent in 2012and 7.8 percent in 2013 in a global base scenario that features a prolonged period of slow growth, said RBS chief China economist Louis Kuijs in an emailed analysis note.

That projection assumes more support from an increasingly pro-growth policy stance but no major stimulus package that could turn the cycle around by itself, Kuijs noted.

“We expect policy easing to continue, but to remain constrained by a somewhat higher tolerance for lower growth among senior leaders and the perceived side effects of the 2008-2010 stimulus as well as the leadership transition,” he said, referring to the new central leadership of China’s ruling party that will be elected during the forthcoming 18th National Congress of the Communist Party of China.

Authorities will announce more cuts in the reserve requirement ratio, or the amount of deposits lenders must set aside, and another reduction in interest rates, Kuijs predicted.

Further approval of infrastructure projects is also expected, he said.

Slowing property investment and flagging exports cooled China’s economic growth to 7.6 percent in the second quarter of this year, the slowest rate since the first quarter of 2009.

Chinese authorities have moved more cautiously to address the downturn than they did in response to the global financial crisis of 2008, when a 4-trillion-yuan stimulus investment plan pumped up the Chinese economy but resulted in massive local government debt and set back efforts to restructure the economy toward a more consumption-driven model.

This time, China has reduced interest rates steadily, cut taxes for small businesses, encouraged private businesses to invest in sectors previously closed to them and fast-tracked construction projects.