Despite worries that downward headwinds may weigh heavier in the coming months, China is unlikely to see a hard landing, although it may take another two to three years to go through the current deleveraging period, Bridgewater Associates founder Ray Dalio told China Daily.
Following strong deleveraging moves that have slowed growth in the past year, some concerns have been expressed that the continued strong deleveraging push may weaken future growth, as deleveraging moves amid downward headwinds may in turn lead to more difficulties ahead.
Some analysts expect that the headline figure of GDP growth may drop further in the year ahead. For instance, Moody’s baseline scenario for China assumes GDP growth of 6 percent in the next year, down from a forecast of 6.6 percent in 2018.
According to Dalio, China’s dual goals to maintain growth and cut leverage levels may not necessary lead to difficulties, as he sees the deleveraging issues from a long-term perspective.
“Naturally slowing or stopping bad lending slows economic growth over the short-term and helps it over the long-term,” he said. “As long as China continues making rapid reforms and broadening the expansion to less-developed parts of the economy while maintaining stability, the long-term prospects are very bright because that rapid productivity growth will continue”.
Dalio added he does not think China would follow the old path of Japan, which entered a “lost decade” in the 1990s.
“Japan had created a much bigger debt bubble, had become much more expensive in relation to other countries, was extremely slow to restructure its debts and lost its productivity growth momentum,” he said. “China is much better positioned and, from what I can see, will do a much better job of restructuring its debts.”
Recent efforts show the central government has been keeping up efforts to curb excess lending to State-owned enterprises, especially those in heavy industry suffering from overcapacity, while striving to maintain the supply of credit to more productive borrowers.
For instance, several government departments jointly issued a notice on Tuesday, urging local governments and State-owned asset management departments to submit lists of zombie companies within three months. The disposal of zombie companies is set to be completed by 2020.
Looking ahead, China will able to achieve steady growth while keeping leverage growth under control by relying more on the fiscal side, according to Yan Yan, chairman of China Chengxin Credit Management.