External risks impede China recovery, more easing seen

Reuters: China’s burgeoning economic recovery may need central bank easing to spur it along next year, as foreign investors scale back spending commitments in the face of a gloomy external outlook that clouds prospects for the world’s biggest exporter.

The People’s Bank of China’s (PBOC) fourth quarter survey of economic expectations, published on Tuesday, saw a jump in the number of bankers anticipating monetary easing in Q1 2013, even as recent hard data shows a mild rebound taking hold in Q4.

Weakness in the external environment - to which the world’s second biggest economy is levered - remains a drag, according to the Ministry of Commerce, which on Tuesday revealed data showing foreign direct investment extended its longest run of year-on-year falls in three years.

“Next year, there are still many uncertainties for external demand and the prospect of a slowly growing global economy will last for a while,” ministry spokesman, Shen Danyang, said. “In addition, there is also increasing trade protectionism emerging. So we cannot be optimistic about the external trade environment next year,” Shen told a scheduled news conference.

China is on course to end 2012 with the slowest full year of growth since 1999 and while the 7.7% rate forecast in a benchmark Reuters poll is way above the world’s other major economies, it is far below the roughly 10% annual growth seen for most of the last 30 years.

Private sector economists, such as ING’s head of Asian economic research Tim Condon, believe Beijing will act to drive the economy forward in 2013 as new leaders at the top of the ruling Communist Party get a firmer grip on the policy reins.

The government so far has relied on fine-tuning policy settings in its efforts to combat the worst downturn China has faced since the 2008-09 global financial crisis, studiously avoiding any hint of repeating the 4 trillion yuan stimulus package it launched back then.

China cut interest rates in both June and July and has lowered banks’ reserve requirement ratio (RRR) by 150 basis points since late 2011, freeing an estimated 1.2 trillion yuan for lending. Many analysts believe room for further interest rate cuts is limited as inflation and property prices start to pick up. Any easing is thought likely to be directed through money market operations that inject liquidity into the financial system.

The PBOC survey showed a rising proportion of Chinese commercial bankers it questioned are joining those outside the system who anticipate more policy easing in Q1 2013.

Some 19.8% of survey respondents said they expected easier policy during the first three months of next year, up sharply from 5.9% who had expected easing in Q4 2012.

The vast majority of survey respondents - 75% - said current policy setting were appropriate.

The survey’s findings also detected a rise in inflation expectations and particular concern about the risk of a rebound in home prices.

Data on Tuesday showed Chinese home prices displaying fresh signs of recovery taking hold in November, the fourth month in the last five to show a rise as a two-year long government campaign to curb prices frays.