“Zhiwei believes that much of the slowdown in China’s economy so far in 2015 was to a large extent driven by a collapse of land sales and the ensuing sharp drop in government revenue growth (H1’15 -3.6%). This ‘fiscal slide’ which dragged down investment growth is now coming to its end, led by the recovery of land sales.”
“Zhiwei notes that land sales accounted for 22% of general government revenues in 2014. The growth of land sales value, at -33% in Q1 and -23% in Q2 this year turned to +30% in Q3. As a result, Zhiwei forecasts general government revenues to grow by 1.1% and 7.7% in Q3 and Q4 respectively, improving from -6.2% in Q1 and -1.3% in Q2. This should lead to a cyclical rebound in investment, while the recovery of land sales and the upturn of the property market also indicates a likely pickup of property investment in the near future.”
“He also expects headline activity indicators to rebound and the official manufacturing PMI to rise above 50. However, while Zhiwei expects the momentum to carry over into Q1 of 2016, he notes that growth beyond that is uncertain.”
“He expects 2016 GDP growth to drop to 6.7% next year from 7.0% this year with the underlying assumption being that the government will be willing to tolerate the slowdown and refrain from further fiscal and monetary stimulus once growth rebounds in Q4. The Communist Party Plenum this month and Central Economic Working Conference in December should shed some more light on policy stance in 2016.”
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