Coatings World - October 2016

The Chinese Economy – Impact on the Chinese Coating Market
October 2016 www.coatingsworld.com Coatings World | 51

firms grapple with the new economic reality in China, economists disagree on the nation’s fiscal outlook. The IMF feels that China is at “a crucial juncture” in its development path and needs to show more urgency in reforming its economy. The IMF expects China to expand by only 6.0 percent next year (2017) while the majority of other economist predict a continuation of 2016 performance (i.e., 6.5% - 6.7%) – see Figure 1.

Many economists believe that China’s GDP growth is set to decelerate to + 6.7% in 2016. Exports most likely would remain a drag on growth this year with a modest demand expansion in the U.S., the European Union and weak new orders from large emerging markets. Private investment will grow at a slower pace limited by a high corporate debt and on-going overcapacity reduction. Much of China’s economic problems stem from overcapacity in a number of industries combined with high inventory levels.

Against this background, policy sup-
port is set to accelerate in the form of a
large fiscal stimulus. The monetary stance
by the central government will also be
supportive but more cautious in order to
contain credit risk. Private consumption
is expected to pick up gradually thanks to
higher purchasing power and improved
confidence.
Non-payment risk will likely remain
elevated. Insolvencies are expected to
grow by +20% in 2016 (from +24% in
2015). Risks are tilted to the downside
in the short run and stem from both ex-
ternal and domestic sources. Externally,
a prolonged slowdown in exports will
weigh on economic activity. Internally,
higher credit risks and delayed reforms
should reduce overcapacity.
Policy stimulus and a weak yuan have
the potential to boost growth throughout
the rest of this year. On the downside, a
rapid cooling in the property sector could
prompt the Chinese economy to slow
sharply. In a longer-term perspective,
credit-fueled growth has the potential to
slow China’s economic transition and ex-
acerbate macroeconomic imbalances.
A bright spot in the Chinese economy
has been the housing market. China’s
housing frenzy is still very much alive.
Credit growth roared back, with medium
and long-term new loans to households
in August, which are comprised of mostly
mortgages, jumping 32.2% year-over-
year. That’s the fastest pace of growth
since 2010, and suggests homebuyers are
trying to get ahead of the game as they
expect further tightening of housing and
credit regulations.
Investors and speculators shrugged
off the government’s cooling measures,
boosting property investment growth to
6% in August. That figure was up 5.4%
in January to August from a year earlier,
according to data released by China’s
National Bureau of Statistics. Property
sales also made a strong recovery, grow-
ing 31.8% in August compared to a year
ago. And on top of that, most Chinese cit-
ies saw gains in home prices.
Although China was hit with a ma-
jor decline in its stock market this didn’t
have an overall, immediate impact on
the average Chinese consumer. Despite
persistent difficulties, some economist
believe that an optimistic future awaits
China. Fluctuations in the market have
not greatly affected average Chinese
households due to the fact that domes-
tic wealth invested in stock markets is
insignificant as a proportion of Chinese
household wealth.