China needs close to 10% economic growth each and every year, to generate the 24 million new jobs, each and every year, it needs to accommodate the growth of the labor market and the influx of farmers to the cities. Well:
Standard Chartered late on Monday became the latest bank to downgrade its view on the Chinese economy. Its economists and strategists, led by Stephen Green, now forecast China’s gross domestic product will expand 7.7% in 2012 and 7.8% in 2013, down from their previous growth projections of 8.1% and 8.7%, respectively.
StanChart also expects interest rates on the mainland to be frozen at current levels until the fourth quarter of 2013, compared to an earlier call for one more cut. They see the next rate move to the upside in the October-December period next year, followed by more hikes the year after.
The GDP growth downgrade echoes market sentiment – a number of other banks, including Barclays, Morgan Stanley and Citigroup – have recently done the same.
With a once-in-a-decade leadership transition looming, the difficulties facing the incoming administration are significant. More importantly for those leaders, the game has changed, and is in need of a new set of rules, StanChart suggests.
The problem, of course, is changing the rules when you have only one ruling party and no legal or loyal opposition. Stasis is the desire; eventual collapse is the result.