The prospect of political transition in China but growth remaining as a top priority will mean a greater reliance on fiscal policy, and public investment rebounding ‘quite promisingly’ from now until next year.
So says Joy Yang, a well-respected economic adviser, regular face on Bloomberg TV, MIPIM Asia 2012 keynote speaker and chief economist for Greater China with Mirae Asset Securities. The investment will most likely be in some of the usual areas such as social housing, water conservation projects, and new energy. But beyond the fiscal stimulus made in 2008, this time there is a difference. With central government in a relatively healthier position fiscally compared with local government, it now has more room with its budget to do something significant. Yang believes central Government does not have much option other than to take the lead, since the 2008 round of investment built in ‘vulnerabilities’ into the local government fiscal position and banking sector.
Yang was born in Shanghai and attended Fudan University in her home town. She began in law school, transferring in the second year to the University of Hong Kong to study economics and finance, graduating in 2002 with first class honours. Then it was off to UCLA and a PhD in economics, leaving for the International Monetary Fund in Washington DC in 2007 before joining Mirae in 2011. What attracted her to economics in the first place? Partially, it is Hong Kong’s status in world finance. But the real reason, she jokes, is because her mother believed it would be harder to find a husband as a female lawyer. Yang’s husband is also an economist…
Yang’s work at Mirae concentrates on China because of its position as one of the most important economies in the world. Does she see the ‘bubble’ of China bursting? ‘I think so. I think I would worry a lot about the financial sector’s stability in China because China’s banking asset is 240% of GDP and the banking credit if we take into account off-balance sheet activities, is 160% of GDP. That is one of the highest in the world relative to GDP per capita…China’s banking sector is getting too large and that poses lot of risks to the financial sector’s future stability.’
‘I feel investors are more and more concerned with China because they realise it’s not a cyclical slowdown any more. It’s actually a structural imbalance they need to address in the coming years. 2012 will be the first year for the new Government to step in and I don’t think they have the capacity or the willingness to accelerate the structural reform immediately after it takes over.’ Instead Yang worries that further short-term stimulus packages will only add to financial sector instability, and greater risk of a hard landing three or five years later. ‘It’s no longer about managing the short-term cyclical movement but it’s more about the market waiting for structural reforms to happen in China. They are most critical to boost the confidence.’