China growth to slow to 6.8% next year

China’s central bank has said it’s comfortable with the yuan also known as the renminbi (RMB) weakening against the US dollar especially with the US Federal Reserve Bank expected to raise interest rates Wednesday for the first time since 2006.

A sharp slowdown in China’s GDP growth rate to 2.3% during 2016-2018 would disrupt global trade and hinder growth, with significant knock-on effects for emerging markets and global corporates, according to a study by Fitch Ratings. With China’s growth at its weakest in 25 years, it can ill afford further capital outflows, nor for its currency to keep pace with a rising dollar, which would suck money out of the slowing economy.

A state think-tank separately forecast growth of between 6.6-6.8 percent next year.

As a result, any rise in USA and euro zone short-term interest rates would be postponed, and oil prices would remain under pressure, Fitch said.

The central bank expects China’s fixed-asset investment to grow 10.8% in 2016 from this year and forecasts retail sales to rise 11.1% on-year.

“It’s quite necessary for China to increase strength on its fiscal policy as the economy faces downward and deflation pressure”, said Mr Li Xuesong, an economist at CASS. The producer price index is forecast to fall 1.8 per cent in 2016, moderating from an expected 5.2 per cent drop in 2015.

Despite volatility following a cut in interest rates and a slight decline in economic growth, China still remains the world’s second largest market; and its economic shift is opening a window of opportunity for Australian businesses. Last year’s 7.3 per cent expansion was the slowest since 1990.

They also predicted that investment in the property sector, which is struggling with a housing glut, would stabilize next year, but the recovery could be slow.