Markets: Xi's got growth covered

ANZ’s China economist says the communist nation's president will help ensure economic growth remains robust.

China’s President Xi Jinping and Premier Li Keqiang’s credibility would seriously suffer if the world’s second-largest economy does not grow at least to their 7.5 per cent target this year, says Li-Gang Liu, chief economist on China for ANZ.

Liu predicts a 7.6 per cent economic growth for China in 2013. “If the government does not meet its target it will have a credibility problem,” he says. “Financial markets will begin to doubt whether an economic forecast number is credible or not.”

The former World Bank and Asian Development Bank economist expects China to announce a detailed urbanisation plan for 2000 cities. The further development of these urban areas will help bolster the economy, Liu says. The investment rate for China is running at a growth rate of 20-21 per cent a year, he says. That is helping to directly bolster the economy annually by 3-4 percentage pints.

The surge in China’s seven-day repurchase rate to a record 10.8 per cent on June 20 was not a “credit squeeze” but a “panic", says Liu. The supply of money, as measured by M2, rose 15.7 per cent in the first five months of this year, indicating there is enough liquidity in the financial system, he says.

“Last month was a confidence issue and a policy mistake,” says Liu. “The PBOC (People’s Bank of China) did not inject enough liquidity. A central bank should stabilise short-term interest rates. They have not played their monetary role well.”

ANZ expects iron inventories at Chinese steelmakers to fall but steel inventories to rise. That means there will be less demand for iron ore in the second-half of 2013, says Liu. But as long as China maintains investment growth of about 20 per cent a year then it has to produce enough steel for infrastructure and construction projects.

ANZ expects the Chinese iron ore spot price in the six months to December 31 to be $US115 a tonne. The spot price for iron ore n the north-east Chinese port city of Tianjin yesterday rose $US1.50, or 1.2 per cent, to $US122 a tonne, its fifth consecutive day of gains, according to Bloomberg data.