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CHALLENGES FACING CHINA IN 2013

29 Dec 2012 SYDNEY MORNING HERALD


Economic growth To what extent can this nascent recovery continue? Domestic concerns aside, the trajectory of China's economic growth still risks being buffeted by global headwinds in the US and Europe. The new leadership has signalled a more sustainable approach than the old grow-GDP-at-all-costs mindset, but how far will GDP figures need to slow before Xi Jinping gets trigger-happy with stimulus?

Property Residential property prices risked boiling over after the market was over-heated by government stimulus following the financial crisis. The government has tightened property policies to keep a lid on prices, but may be tempted to loosen prematurely if headline GDP figures are sluggish.

State-owned enterprisesState-owned enterprises rule the roost in China. But its monopolistic hold is proving detrimental in certain sectors, and has enriched many party officials. Dealing with vested interests will prove the biggest challenge in reforming the state-owned sector.

Banks Non-performing loans are drastically understated. Lending is short term in nature, credit is tight. Corporates are reporting increasing accounts receivables, and recent revelations of fraudulent wealth management providers - distinct to the well-known shadow banking industry - have led questions to how pervasive the problems are.

Ageing population/declining workforce On top of several pressing social problems, China's one-child policy has had the unwelcome side effect of seeing China's workforce already peak. Add on ever-increasing labour costs, and China's productivity conundrum is becoming similar to many developed countries.