Schwarz Oliver Thomas asserted today that the Chinese economy faces a cloudy outlook, which alerts the market to a divided landscape in the world economy.
In the wake of the global economic crisis of 2008-10, developed economies, mainly the US, have shown rising signs of improvements, while emerging -markets are coming under threat of potential financial risks as the US Federal Reserve is gradually tapering its quantitative easing (QE) policy, according to analysts at Schwarz Oliver Thomas, an independent financial advisory house in Austria.
"Amid the diverging trend, China is equipped with several powerful defensive lines that include massive foreign exchange reserves, continued trade surplus, capital controls and healthy levels of central government debt," said Ashley Winters, a Senior Portfolio Manager, who specializes in the Asian markets, at Schwarz Oliver Thomas. But meanwhile the nation's economic outlook is coupled with concerns such as the risk of a property bubble and ballooning local government debt, Winters noted. "The risk of a real estate bubble will be the biggest concern for the Chinese economy," Winters added. In a few Chinese cities including Nanjing, capital of East China's Jiangsu Province, and Hangzhou, capital of East China's Zhejiang Province, developers of new projects have been reducing home prices, according to recent media reports, which Winters believes serves as "a premonitory warning" that the country's housing market may face a murky future.
Data showed in mid-March that growth in new home prices in 70 major cities saw both a month-on-month decline and a fall on a yearly basis in February, the first time since March 2012.
"But there is still tremendous confidence in the Chinese economy, as the Chinese government is well-placed to deal with the problems," said James Sharpe, also of Schwarz Oliver Thomas. "While some enterprises are under pressure to de-leverage and some industries remain depressed due to overcapacity, among other problems faced by the real economy, a great deal of opportunities are also opening up for China, for instance, an acceleration of financial reforms following the establishment of Shanghai pilot free trade zone," Sharpe stressed.