China says 2018 growth target to reflect new changes in economy

China’s economic growth target for 2018 will reflect new changes in the economy as the government put more emphasis on higher quality development, the State Council Information Office said on Monday. 

 The government will set its key targets for 2018 “after earnestly studying new performance, new situations and new problems”, the office, the government’s public relations arm, said in a statement in response to Reuters’ requests for comment on a source-based story.

 Policy sources have told Reuters that China’s leaders are likely to maintain this year’s growth target of “around 6.5 percent” in 2018, even as they ratchet up efforts to control systemic risks from a rapid build-up of debt in the world’s second-largest economy.

 Buoyed by sustained state spending, a construction boom and resurgent exports, analysts forecast China’s economy should beat the official growth target for this year.

 The economy grew 6.7 percent last year, a 26-year low, but has expanded 6.9 percent in the first three quarters of 2017.

China's industrial profits surge in October, take sting off government debt crackdown

Asian Stock Markets

China’s industrial firms weathered a broad government crackdown on financial risks as profits continued to surge last month in a stabilizing force for the world’s second-biggest economy, which has started to cool slightly in recent months. 

The vast industrial sector has been boosted by a year-long, government-led construction spree, helping lift demand and prices for building materials and taking the edge off higher borrowing costs.

Indeed, mining and heavy industry contributed the biggest gains in October, propelling overall industrial profits by 25.1 percent year-on-year to 745.4 billion yuan ($112.94 billion), compared with a 27.7 percent jump in September, the National Bureau of Statistics (NBS) said on Monday. 

Despite the modest slowdown, October’s growth rate was still the second-highest for a single month this year, and overall profits are on pace to easily top 2016’s record 6.88 trillion yuan.

The data covers large companies with annual revenue exceeding 20 million yuan from their main businesses.

More than half of the increase in profits in October came from mining, iron and steel smelting and processing, chemicals, and oil and natural gas extraction, He Ping of the statistics bureau said in an accompanying statement.

The closure of polluting plants and factories have fuelled fears of supply shortages in the winter, lifting prices of finished goods including steel and copper products.

The high-price trend has persisted, with domestic iron ore futures prices up over 15 percent since the start of November, while coking coal has risen over 23 percent.

Data earlier in the month showed China’s factory prices continued to post strong gains as capacity cuts and anti-pollution measures kept supply in check.

Factory activity, however, has cooled in the past few months. A batch of October data including industrial output, investment and retail sales also undershot expectations, as Beijing’s crackdown on financial risks raised borrowing costs, while the tighter pollution rules have shut many factories and mines.

These factors have started to drag on Asia’s economic powerhouse, which has defied market expectations with growth of 6.9 percent in the first nine months of the year, supported by the construction boom and robust exports.

Curbs on the property market to fend off speculators are also expected to persist, putting a lid on a range of sectors including construction.

Despite the government’s focus on reducing corporate leverage, the asset to liability ratio has remained unchanged at 55.7 percent for the last three months, indicating efforts to improve balance sheets at Chinese firms may have stagnated.

Growth in liabilities has also picked up this year. At the end of October, industrial firms’ liabilities were 6.7 percent higher than a year earlier, compared with a 6.7 percent increase as of the end of September and 6.3 percent growth for 2016. 

China’s stock markets were down in Monday morning trading, as jitters over an effort to improve oversight in the financial industry pulled down companies in the sector, led by a 1.64 percent decline in the Shanghai Stock Exchange’s banking index.

In the first 10 months, industrial firms notched up profits of 6.25 trillion yuan, up 23.3 percent from a year earlier, compared with a 22.8 percent gain in January-September.

There was some moderation in profit growth for upstream industries, as mining profits rose 405.4 percent from a year earlier in January-October, compared to 473.8 percent growth in the first nine months of the year.

Profits earned by China’s state-owned firms rose a sharp 48.7 percent to 1.41 trillion yuan in the first 10 months, compared to 47.6 percent in January-September.

IMF warns U.S. fiscal uncertainty, China's credit growth pose risk to Asia

A lack of clarity about the size of an expected U.S. fiscal stimulus and China's rapid domestic credit growth are among risks that cloud Asia's economic outlook, a senior International Monetary Fund official said on Monday.

IMF Deputy Managing Director Mitsuhiro Furusawa noted a faster-than-expected sequence of interest rate hikes by the U.S. Federal Reserve could trigger a "significant" dollar rise that would increase the debt burden of Asian emerging economies with large dollar-denominated borrowings.

"Nonetheless, the near-term outlook is clouded with significant uncertainties and risks," such as a lack of clarity on U.S. economic policy including the size and composition of President Donald Trump's proposed fiscal stimulus.

"China's rebalancing process continues, but growth remains reliant on rapid domestic credit growth that could cause problems down the road," he said.

Furusawa called on Asian policymakers to adapt their fiscal policies to engage slowing population growth and rapid aging in the region.

Asia's population growth is projected to fall to zero by 2050, with the ratio of the elderly to working-age population reaching 2-1/2 times its current level, he said.

Asian policymakers could tackle such demographic challenges through reforms to curb health care and pension system costs, providing tax incentives to raise labor force participation, and compiling credible medium-term fiscal plans to ensure debt sustainability, he said.

Sanjeev Gupta, deputy director of the IMF's fiscal affairs department, delivered the prepared speech on behalf of Furusawa, who could not attend the seminar because his flight had been canceled.

Some in the U.S. business community worry about tit-for-tat retaliation in trade disputes with China.

Jacob Parker, vice president of China operations at the U.S.-China Business Council, said the two presidents need to take "positive actions that would lead to a more durable relationship, not retaliatory actions that would lead to a trade war".

The list of commercial issues between the two countries was so long, it would be impossible to make a major dent in them with one meeting, he said.

China is the largest export market for U.S. soybean producers, accounting for 62 percent of U.S. soy exports in 2016 with a value of over $14 billion, leading some experts to suggest the sector could be particularly vulnerable to retaliation.

Steve Censky, chief executive of the American Soybean Association, told Reuters he hopes Trump will take a "prudent" approach to the trade relationship and address any issues in a "workman-like manner", recognizing that both countries have a lot to lose if the relationship suffers.

William Zarit, chairman of the American Chamber of Commerce in China met senior Trump administration officials in February, and said "it was clear they were very familiar with the issues facing American companies in China, perhaps more so than previous administrations".

But several corporate lobbyists, representing a range of companies expressed concern Trump's lack of attention to detail could prove counterproductive when it comes to the intricacies of the massive trade and investment relationship.

OECD sees China growth slowing to 6.5 percent in 2017, 6.3 percent in 2018

China's economic growth is likely to slow to 6.5 percent this year and cool further to 6.3 percent in 2018, the OECD said, though exports are set to pick up as global demand strengthens.

The Organisation for Economic Co-operation and Development also warned of China's ballooning corporate debt in its bi-annual economic outlook report released on Tuesday.

China's corporate debt is about 175 percent of GDP, one of the highest in emerging market economies, he said, with state-owned enterprises (SOEs) accounting for around 75 percent of that.

Such guarantees have enabled SOEs and local government investment vehicles to continue accumulating debt, she said.

Financial risks in China are mounting because of indebted enterprises, growing non-bank activities and enormous overcapacity, the report said.

The OECD's forecast for 2017 is in line with the Chinese government's growth target of around 6.5 percent this year, versus last year's 6.5-7 percent range. The economy grew 6.7 percent in 2016, the slowest pace in 26 years.

Some analysts believe the more modest target will give policymakers more room to tackle debt risks and push through painful reforms, though authorities are expected to proceed cautiously to avoid hurting growth.

Economic growth remains high "but is gradually and appropriately moderating as the population ages and the economy rebalances from investment to consumption," the report said.

Export volumes are expected to grow 3.4 percent this year and 3.3 percent next year, up from 2.3 percent in 2016, due to increasing global demand.

The world's second-largest economy needs more innovation, entrepreneurship, effective corporate governance and reform of its state-owned sector, the OECD added.

The report did not single out the threat of rising protectionism from the United States but noted that protectionism by some trading partners would hurt Chinese exports