China sceptics beware – Glenn Stevens is not on your side.
In reply to a question yesterday as to whether he is concerned about a slowing Chinese economy, the Reserve Bank of Australia governor replied that such a concern was more problematic to forecasters.
Those at investment banks who are agonising over whether China’s economy will grow at the government’s official target of 7.5 per cent probably had previous forecasts that were “unrealistically large,” Stevens told his audience drawn largely from the financial community.
“We’re all still adjusting our expectations” toward the Chinese economy, the central bank chief says. Longer term, Stevens suggested, economists may have to accept Chinese growth rates of 5-6 per cent. That doesn’t mean that Australia’s economy is going to be damaged as a result, he says.
In his prepared remarks to the Anika Foundation luncheon yesterday, Stevens told his audience: “there has been a large lift in the global demand for natural resources that our country happens to have in abundance”.
“Most people agree that the rate of growth of that demand will be lower in the future than it has been in recent years… but the lift in the level of demand we have already seen is permanent enough and large enough to have quite a persistent effect on our economy,” says Stevens. “Australian production is meeting much of the additional global demand for iron ore and, prospectively, natural gas.”
The spot price for iron ore imported through the northeast Chinese port city of Tianjin was $US130.90 a dry tonne yesterday, according to Bloomberg data. On March 27, 2009 it was $US59.10 and its average price since then has been $US136.593, according to Bloomberg. In the last 12 months the US natural gas futures contract traded on the New York Mercantile Exchange has gained 6.8 per cent, according to Bloomberg.
What is more concerning to Stevens is China’s shadow banking industry or the availability of credit financed through high-paying interest rate products outside the official financial system. How China manages the shadow banking system “back to earth gently,” says the Reserve Bank chief, “is the key question mark” for the world’s second-biggest economy.
Chinese state owned banks borrowing costs are the highest they’ve been in more than a year, Bloomberg News reports. Bad loans in the three months to March 31 increased for the sixth straight quarter. On July 28 Beijing announced an audit of local governments amid concerns some may struggle to repay debt.