Asia Briefing:Optimism is growing about the Chinese economy this year. Annual economic growth dipped to 7.4 per cent in the third quarter of 2012, the weakest rate since the economic crisis began, but growth has been picking up steadily since October on the back of a slate of policies aimed at boosting economic expansion.

The upbeat assessment was given a boost with news that growth in the increasingly important services sector accelerated in December to its fastest pace in four months.

China’s official purchasing managers’ index (PMI) for the non-manufacturing sector rose to 56.1 in December from 55.6 in November, according to the National Bureau of Statistics (NBS).

UBS economist Wang Tao wrote in a research note that the PMI figure showed that economic recovery had continued in China, albeit at a modest pace, while producer prices and industrial earnings had also started to recover.

“When December and Q4 2012 economic data are released in the coming two weeks, we expect them to demonstrate that fixed asset investment and property activities have maintained their robust momentum amidst easy credit conditions, export growth has stabilised, and

inflationary pressure remained subdued,” she said.

Macro risks

However, while 2013 is set to start brightly, policy adjustments to control macro risks could intentionally or unexpectedly limit the upside.

“For example, the most recent joint decree by the Ministry of Finance and other agencies to restrict local governments’ ‘irregular’ fundraising through various wealth management products and trusts may lead to a slowdown in government investment,” she warned.

While China’s economy has issues to deal with – huge debt, an over-inflated state sector, an ever-widening wealth gap and sluggish corporate earnings – the general view is still positive.

Byron Wien, vice-chairman of Blackstone Advisory Partners, wrote in his annual list of 10 surprises for 2013 how the new leadership under Xi Jinping seemed to be set on implementing reforms to root out corruption, keeping the economy growing at 7 per cent or more, and on starting to develop improved healthcare and retirement programmes.

“The Shanghai Composite finally comes alive and the ‘A’ shares are up more than 20 per cent in 2013, in contrast with the previous year when Chinese stocks were down and some developing markets, notably India, rose,” he wrote.

It’s the 28th time he has issued the list, which he began in 1986 when he was the chief US investment strategist at Morgan Stanley. He is also forecasting that the Japanese economy will remain lacklustre and that the yen will decline to 100 against the dollar. “The Nikkei 225 continues the strong advance that began in November and trades above 12,000 as exports improve and investors return to the stocks of the world’s third largest economy,” said Mr Wien.

Trade policies

Wei Jianguo, secretary-general of a government think tank, the China Centre for International Economic Exchanges, said the country’s trade policies would become more open this year in an effort to boost sluggish imports and exports.

“China is losing some advantages, such as low labour costs, but future reforms will intensify its competitiveness,” Mr Wei told China Daily.

“It’s expected that overall reform, ranging from the tax and fiscal system to the function of the government, will be accelerated in this year.”

Import duties on a number of products have been lowered from this month. They include milk powder for infants, robots for vehicle production and some rubber products. In the first 11 months of 2012, China’s exports grew 7.3 per cent from a year earlier, while imports grew 4.1 per cent, according to the Ministry of Commerce. The government had set a target of 10 per cent growth for exports and imports last year, but it seems the goal will be missed.

Wei pointed to a number of free-trade agreements, such as those between the United States and South Korea and the EU and Singapore.

These could inspire China to do likewise and sign a free-trade pact with the US, which replaced the EU as China’s biggest trading partner in 2012.