China: Growth picture looks intact for now - Commerzbank

EM strategists at Commerzbank think that China is likely to reach its 6.5% growth target next year but risks are mounting – and this is where overly optimistic expectations for EM growth come into play again.

Key Quotes

“The stabilisation of China’s growth was made possible by substantial loosening of monetary and fiscal policy. This has brought corporate leverage up to unprecedented levels. This is widely known and does not require further elaboration. It is less known that – like EM on aggregate – debt dynamics are reaching every corner of the Chinese economy. While still comparatively low, private household debt has ticked up at an accelerated speed. Mortgage lending has gone through the roof. This fuelled the real estate sector further.”

“In our view the key risk to watch in the coming months is whether the – to date – mostly city specific tightening of the property market extends to national tightening. This would introduce downside risks for the Chinese growth outlook given that a large part of private household wealth is in real estate – it’s all about risk control in 2017!”