China: Policy tightening to put brake on growth – Danske Bank

The research team at Danske Bank suggests that following a robust pick-up in activity in 2016, Chinese growth is set to slow in 2017.

Key Quotes

“The drivers behind the recovery - housing and infrastructure - will lose pace, as China has moved the foot from the gas to the brake since mid-2016 to reign in runaway house prices and rising financial risks.”

“We have revised down our growth forecast to 6.3% in 2017 (from 6.6%) and to 6.0% in 2018 (from 6.3%). With growth slowing and financial risks coming to the surface, we expect China to be in for a bumpier ride this year and see downside risks to growth.”

“While financial risks are rising, we do not expect a big crisis in the next one to two years as China will be quick to scale back on regulatory tightening if growth suffers too much. On a three to five year horizon, though, we still see a 50% probability that China will face a crisis of some sort as the dependency on credit and shadow banking has increased in the past years.”