Author: Gordon Platt

EMERGING MARKETS INVESTOR: NEWS

By Gordon Platt

Monetary and fiscal policies in China will ease further to support investment in infrastructure, public housing and water resource projects, says HSBC.

In addition, Beijing should and will likely deregulate sectors, including utilities, resources, healthcare and education, to spur private investment, says Qu Hongbin, chief economist for Greater China at HSBC in Hong Kong. “There is a popular view in the market that China has overinvested and therefore can no longer rely on investment to sustain its growth,” he says. “We disagree.”


China is only halfway through the process of urbanization and industrialization, according to HSBC. Although it has focused extensively on infrastructure building in recent years, China still has a less-developed rail network than the US had more than a century ago, and its highway system also trails that of most developed economies, bank analysts noted in the report.


China’s investment growth should be maintained at around 20% this year, helping to keep GDP growth around 8.5%, according to HSBC. In addition, the country’s capital stock per worker is only a fraction of that of the US or South Korea—at 8% and 15%, respectively. “In other words, China’s capital accumulation is still far from reaching the stage of having diminishing returns; we believe the country needs to invest more, rather than less,” HSBC analysts said.


Although China’s investment-to-GDP ratio is very high, at 46%, it is still lower than the country’s domestic-savings-to-GDP ratio, implying that China’s savings resources have not been fully utilized domestically, HSBC noted.