Five things to look out for
Updated: 2016-02-27 01:16
(China Daily USA)
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Chinese stocks fell on Feb 15 as trading resumed after the week-long Spring Festival holiday. Provided to China Daily |
China's economy may remain resilient but over the past year it has had to face several difficult headwinds. The following are five areas of concern at the top of the government agenda.
Volatile stock market
The Chinese stock market made headlines around the world over the past year.
After a year-long bull run the Shanghai Composite Index peaked at 5178 in June before crashing. It lost 45 percent of its value to close at 2860 on Feb 19.
Apart from cracking down on illegal activities, the government will need to address the problems arising from the immaturity of the market.
Some 70 percent of share buyers are small private investors. Before the crash, many investors behaved like gamblers and were borrowing money through so-called margin lending to invest in the market.
Local government debt
Local government debt first emerged as a significant problem in 2011 when China's National Audit Office published a report.
The government is determined to overhaul the system of local government financing and put an end to the implicit guarantee that if cities get into financial difficulty the central government will always bail them out. Part of the reform will involve local governments issuing their own bonds.
State-owned enterprises
The inefficiency of China's State-owned enterprises is a drag on China's economic growth prospects.
According to Gravekal Dragonomics, a Beijing-based economic research company, they had a rate of return on assets in 2014 of 4.6 percent, almost half that of the 9.1 percent of the private sector.
The government is set to unveil its 13th Five-Year Plan (2016-20), one of the biggest shake-ups of the sector since former premier Zhu Rongji's reforms of the 1990s.
It particularly wants to tackle so-called zombie companies, the worst performing of the whole sector.
Currency depreciation
The value of the yuan has been one of the major global concerns for more than six months.
The People's Bank of China made an adjustment to the exchange rate mechanism in August that set off sustained speculation against the yuan.
The bank's governor, Zhou Xiaochuan, said this month that he would stand up to international speculators, including billionaire George Soros, trying to destabilize the currency.
Two factors that are likely to continue to support the yuan are China's large current account surplus in 2015 and relatively low levels of domestic inflation.
Housing bubble
Whether China has a housing bubble that may burst has been a worry for many years. Last year the prices of new homes rose 15.5 percent in Shanghai and 8.3 percent in Beijing, but just by 1.6 percent in a survey of 70 Chinese cities.
The real estate boom has been partly fueled by the huge number of first-time buyers continually coming into the market, but this may come to an end as the country's working age population shrinks.
The government, which has continually tried to control the market through regulation, has recently eased policy. On Feb 2 the financial authorities cut the downpayment required for first-time buyers from 25 to 20 percent. This followed the move in October when it was reduced from 30 percent, where it had stood since 2010, to 25 percent.
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