China: GDP growth to slow in 2018 - Wells Fargo

Economists at Wells Fargo forecast that China will slowdown in 2018 relatively to 2017. According to them, the government should be able to manage the banking system in case of a crisis. 

Key Quotes: 

“Volatility rose in financial markets in early 2016 as investors fretted that growth in China was slowing sharply. Fast forward six quarters, and Chinese economic growth has actually been remarkably stable between 6.5 percent and 7.0 percent over that period. Chinese foreign exchange reserves, after falling significantly amid these fears, have also stabilized alongside economic growth around the $3 trillion mark.”

“Chinese authorities “encouraged” stronger credit growth last year when the economy needed an extra boost, helping to stabilize economic growth. It appears that policymakers are now attempting to tamp down credit growth so as not to inflate a housing bubble. House prices in “Top Tier” cities, such as Beijing and Shanghai, have soared over the past couple years, and policymakers face the daunting task of deleveraging, while also threading the needle on the government’s economic growth target.”

“We forecast that GDP growth in China will slow somewhat in 2018 relative to the rate that likely will be achieved this year. Although there is justified concern about the amount of financial leverage in the non-financial corporate sector, we believe that the Chinese government should be able to manage any issues that may arise in the banking system in the foreseeable future.”

“China also faces some fundamental issues that likely will lead to even slower economic growth in the next decade. Not only will the workingage population in China decline in coming years, but the build-up in leverage likely will constrain growth in capital spending.”