Credit Suisse analysts took a trip to China
Research analysts from Credit Suisse visited China and spoke to senior officials from the PBoC, MoF, NDRC, CSRC and academics.
Worries about non-performing loans and concerns about corporate cash flows were on the rise. It's particularly harsh in the industrial sector where "companies' cash flows perhaps are under more pressure than what read GDP growth from the statistical bureau has suggested."
Investors they spoke to expect more stimulus in the months ahead but believe China needs measures on the supply side, instead of the demand side.
Finally, they said Chinese efforts to liberalize capital flows have been effective but the full process is more complicated than market watchers believe.
- "Almost all the people we met acknowledged the growth slowdown and expected a
further slowdown next year."
- "Foreign observers tended to be more concerned about the risk of a further deceleration
in growth. Some believed that the current growth in China was around 4%-5%"
- There was no consensus on the reasoning for China's currency devaluation in August.
- China's total debt to GDP ratio was possibly 236% at the end of 2014 compared to 170% in 2008
- The local government debt swap was seen as successful for managing systemic risks but corporate leverage is a key concern
- International comparisons suggest China's non-financial corporate leverage is among the highest in the world
- Watch non-performing loans associated with small banks, there may not be an efficient risk management scheme in place
- Locals don't see a sovereign debt crisis in the short or medium term despite severe problems in pockets
- Domestic bond ratings may not be reliable
Overall, they are concerned.
"There is a consistent dichotomy between the mainstream domestic economists and mainstream overseas economists regarding China's growth outlook, with the locals being more optimistic. We found the gap seems to be narrowing quickly recently though. Many Chinese economists, including those working for the government, expressed concerns. They seemed to have realized that monetary and fiscal stimulus measures may not help growth prospects much next year."
An interesting tidbit:
"the mix of consumption is shifting as consumers born in the 1990s become more important. Their spending habits look very different to those of their parents, with much lower savings rates and a keen interest in 'life style' spending."
On the PBoC, they expect an interest rate cut of 25bps and an RRR cut of 50bps before the Chinese New Year.