By Miyoko Ishigami
China’s economic growth is expected to cool from 9 percent year-on-year in 2012 due to slowing demand the so-called G3 — the US, Europe and Japan — but will still be much higher than the emerging markets’ average, and the world’s second-biggest economy will maintain fine-tuning monetary policy, Kuwait China Investment Company (KCIC) said Tuesday.
“Asian economies will try to loosen their monetary policy to encourage growth in the face of weakening trade with the G3, but China, one of the strongest factors in the post-crisis uplift, will take on a different approach as the government will “fine-tune” monetary policy and not loosen immediately, ” the company said in its weekly analysis.
The Chinese government wants to maintain vigorous and steady economic growth, stable consumer prices and social stability for its citizens, it said, adding that stability will be key in a year when many of the country’s top officials, including the President and Premier, will be replaced this year.
The People’s Bank of China, the nation’s central bank, started by loosening credit restrictions on small to medium enterprises and cut the required reserve ratio by 50 basis points, bringing it down to the current 21 percent for large banks. The ratio is a regulation that limits the ability of commercial banks to lend. The policy interest rates, the base lending rate and the time deposit rate are a more direct link to households and businesses.
Fine-tuning will initially involve at least four more ratio cuts, but not the loosening of interest rates in early 2012, according to KCIC.
“We think China’s central bank will increase the limit on how much local banks can loan in 2012 to CNY 8 trillion from CNY 7.5 trillion, with the increase frontloaded in the first quarter of 2012. If global growth conditions turn out to be worse than expected, given the high uncertainty in the European debt crisis, the Chinese government may resort to stronger expansionary measures,” the firm noted.
It is unlikely that Beijing will launch a stimulus package like it did a CNY 4 trillion package in 2008, but it will try to support its domestic economy in order to keep growth steady.
In order to decrease the economy’s reliance on trade, the Chinese government wants to speed up the services sector development via increases in fiscal expenditure and tax breaks. Companies that are involved in sectors related to the domestic economy such as infrastructure, energy, consumer goods and financials will benefit from the boost. Emerging markets are expected to expand 6 percent this year, while the global economy will just grow at 3 percent, KCIC added.
KCIC was founded in 2005 with a capital of KD 80 million by an Amiri Decree with a mandate to develop investment opportunities in Asia towards building an Asia focused asset management company. The public company employs a team of specialists in markets in Asia and currently manages assets in excess of USD 600 million. Key shareholders include the Kuwait Investment Authority, the Sovereign Wealth Fund of Kuwait, National Investment Company, one of the leading investment banks in the Middle East, and Al Ghanim Industries, one of the largest conglomerates in the Middle East.