1. NS4960 Spring Term 2018 China: Growth Scenarios
Oxford Analytica China Coal Trends Signal Deep Economic Shifts, April 2016

2. EM Recovery

3. China: Scenarios I Baseline Case 60% Upside Case 15%
Leaders prefer growth and stability to reform risking further reliance on debt and leveraging
Reforms only post 2018 at best
Capital outflows moderate
Slow rebalancing away from investment as domestic consumption is strong.
Upside Case 15%
Bank of China pressured by senior leaders to adopt generalized easing, cutting rates
Fiscal expansion means deleveraging further delayed.
Banks and SOEs bailed out and forced to operate more commercially

4. China: Scenarios II Downside Case 25%
Government fails to stimulate/implement reforms
Sharp slowdown and possible crisis
Growth slumps, credit boom turns to bust
Non-performing loans up to 6-7% of banking assets
Massive outflows, reserve losses, devaluation

5. China: Longer-Term

6. China: Policy Constraints
Why can’t China just spend its way out of the slowdown?
Optimists point to China’s history of responding to economic challenges – 2008 lending surge, earlier bailout of banking system and a restructuring of state-owned enterprises
Problem China’s debt burden is now much larger
Spending now less effective –
Private companies have been pulling back on investment
Overall productivity of state spending is low
Also fear of creating more bubbles in asset markets

7. China’s Risky Portfolio
FT Big Read: China, October 14, 2016