Friday, May 13, 2016

Is China heading for lower growth? - Sara Hsu

Sara Hsu
Sara Hsu
An anonymous top-official suggested that China´s economy was heading for L-growth, jargon very few looked into says financial analyst Sara Hsu in the Diplomat. She suggests L-growth might even imply a lower growth than currently implied.

Sara Hsu:
Recently, in the People’s Daily an unidentified “authoritative figure” discussed China’s likely growth trend, referring to it as an “L-shaped trend.” Observers have assumed that the “authoritative figure” is a top official who cannot be named. The official emphasized that in the first quarter of the year, conditions have stabilized and reform has continued, but that reliance on credit has been excessive. While this article has been reported extensively in both the Chinese and Western media, there has been little discussion of what L-shaped growth is, and what is means for China. 
L-shaped growth means that after the market or economy bottoms out, comprising the vertical part of the L, the economy then takes on a very slow recovery, comprising the horizontal part of the L. This would imply that the “New Normal” signifies even slower growth than expected, especially in a recovery after notable real estate and stock market asset price declines have taken place. A V-shaped growth curve would mean that after the economy reaches its lowest point, recovery takes hold and climbs rapidly. This is certainly not what is happening, as China struggles to spur growth in new sectors.
More in the Diplomat.

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