China remains leader in emerging markets despite many challenges

A cash crunch. Interbank lending rates. Shadow banking. And the slowing GDP growth. All dominated headlines this year about China's economy and some may continue to dominate them in the new year.

China's financial system was hit with a cash crunch in June that sent lending rates soaring to 25 percent. Lending froze and news agency Xinhua confirmed the interest rate spike was "partially engineered" by China's central bank to curb shadow banking.

The shortage of cash sent the market into a panic, after which the People's Bank of China reduced borrowing costs back to normal. The credit crunch, Xinhua said in an editorial, could "be just the beginning of the pain caused by curtailing shadow banking, a bandage necessary for ensuring the health of the financial system of the world's second largest economy."

China's stressed financial system was met with another crunch this week: Interbank lending rates hit a six-month high at 8.94 percent on Monday, compared to the 9.29 percent in June, according to the Wall Street Journal. The Friday prior, the People's Bank of China had announced on social media it had injected more than 300 billion yuan ($49.4 billion) into the financial system to prevent another liquidity crunch. Nevertheless, rates increased.

The other big centerpiece of Chinese economic news has been the country's slowing GDP growth and whether the rate will continue to meet the government's yearly targets.

First-quarter GDP fell to 7.7 percent from 7.9 percent in the fourth quarter of 2012 and then fell to 7.5 percent in June, leaving China watchers and economists wondering if the country will meet its full-year target of 7.5 percent growth. Their fears were allayed when growth picked up to 7.8 percent in the third quarter.

At a Bank of America 2014 economic preview event, Alberto Ades, co-head of economics research, told China Daily that the fourth quarter appears to be "coming in quite strongly." Despite the bank forecasting "marginal decline" in Chinese GDP from 7.7 percent this year to 7.6 percent in 2014, Ades said that China remains the leader of emerging market economies.

He said the emerging markets were "very stretched" this summer after Japan's quantitative easing announcement in April and China's credit crunch in June, but he predicts 2014 will be easier on emerging markets. The bank forecasts a "slightly stronger" renminbi in 2014 as well.

A major Chinese think tank, the National Academy of Economic Strategy under the Chinese Academy of Social Sciences, said in a December report that the best-case scenario is for the Chinese economy to achieve a 7.8 percent growth rate in 2014. Former World Bank chief economist Justin Lin said that he's "confident China will be able to maintain 7.5 percent to 8 percent growth," even if "reform is postponed," according to the Wall Street Journal.

The second half of the year saw a pick-up in IPO activity in the US for Chinese companies, which were dormant for two years after a string of accounting and tax scandals kept them from going public.

US exchanges saw five newly-listed Chinese companies in the last two months alone - Chinese-backed AMC Entertainment debuted on the New York Stock Exchange last week and auto information website Autohome surged 75 percent on its first day. Chinese companies listing in the US this year raised $533.8 million on the New York Stock Exchange and $350.1 million on NASDAQ, according to data compiled by Thomson Reuters.

Chinese direct investment continued to grow, hitting double-digit numbers for the first time this year, according to research firm Rhodium Group. Chinese companies spent $12.2 billion on acquisitions and projects in the US in the first nine months of 2013, Rhodium Group said. The single largest Chinese acquisition in 2013 was Shuanghui International's $7.1 billion purchase of Smithfield Foods Inc, the biggest US pork producer, which closed in September.

Surveys compiled by Thomson Reuters and Freeman Consulting Services showed that North and South American business leaders say that merger-and-acquisition opportunities in China in 2014 look increasingly compelling.

amyhe@chinadailyusa.com

(China Daily USA 12/25/2013 page1)