Views and Insights

China Update

China Update

In China, slowing economic activity and the falling inflation rate (1.6%) prompted the government to stimulate the economy.  In November 2014, the Chinese Central Bank cut interest rates for the first time in two and a half years, signalling the start of a policy loosening cycle.

The reversal of property purchase restrictions led to a recovery of sale volumes and developers are starting to purchase land again in the bigger cities.  Stabilisation of property prices is important for the solvency of the banking system, given the ubiquitous use of property as collateral for lending.

While the potential loosening of interest rate policies can spur a cyclical recovery, escalation of reform efforts bodes well for the country’s longer-term prospects.

Evidently, such efforts are gaining momentum on multiple fronts:

-    Corruption crackdown continues unabated.

-    Simplification of permit application procedures for private enterprises.

-    Rural land reforms – liberalising trading of rural land rights.

-    Opening-up of capital markets to foreign participation.

-    State-owned enterprise (SOE) reforms – shifting focus to investment returns.

-    Roll-out of more free trade zones (which have similar regulatory norms to global financial services hubs).

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