© Maritza Cabezas
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GDP growth in 2013 was 7.7% on the whole, down from 7.8% the previous year. This rate is much lower than the double digit growth rates that we saw a decade ago; however, it is slightly above the target of 7.5% set by authorities for the year 2013. Given the uncertainty caused by the on-going reforms and its negative impact on the economy our GDP forecast has been adjusted to 7.5% from 8% in 2014. We maintain our forecast of 7% for 2015. In our opinion, China needs stable growth and authorities are committed to support the economy by introducing reforms. The global recovery will do its share to boost the China's economy as well.
China's home prices continued to surge in December and they continued to set records in the past year despite government's efforts to cool the market and the fact that there are so called "ghost cities". To your mind, will the government's tightening measures stabilize the market or is it too late?
House price growth remained unchanged at 9.9% year on year in December. Since 2011, there have been measures to control the rapid growth of house prices; although, this has become less of a priority for the new leaders in China. At the moment, much more attention is given to financial reforms not the housing sector.
There is a lot of talk about China's shadow banking and even about its possible default. What are your thoughts on this matter? Can we draw the line between this issue and the financial crisis of 2008, as back then lack of adequate supervision of shadow banking was one of the main problems?
Taking into account the past experience of 2008, China's authorities are trying to reduce the risks of shadow banking. Early last year they took measures to reduce the risks of shadow banking and this year additional measures were announced. The growth of loans, including shadow banking activities such as trust funds has been slowing down and that is a positive trend. There will be sharper regulation following the new directive issued. Putting the financial system in order is not an easy task to do, mainly due to the fact that shadow banking often is the less regulated segment of the banking system. Moreover, China's authorities also want to balance reform and growth.
Recently we have seen China's first initial public offering in more than a year, and there are many companies that are willing to go public; however, many specialists think that at this point the market is very unstable and it is very risky to invest. To your mind, was this the best moment to end China's IPO freeze?
Sentiment changes vary easily towards China. At the end of last year there was more optimism on China's growth; however, now there has been some uncertainty surrounding the implementation of the reforms and how it will impact the economic activity. In terms of IPOs, it is very important to look at the long term prospects and if ending IPOs freeze will result in more sustainable growth for China. We think the reforms are ambitious and if implemented with the right sequence and timing they will be positive for long-term growth.
What will be the main drivers for the Chinese Yuan and where do you see it heading this year? Do you think that China's currency will continue to appreciate against the U.S. Dollar?
We expect an appreciation of around 1% for this currency pair for 2014; however, it is lower than in 2013. China continues to be one of the fastest growing economies with strong prospects for exports given the global recovery. Taking that all into account, we forecast that advance will hold.