Fiscal support to sustain China growth in 2017: Morgan Stanley

BEIJING - A Morgan Stanley economist said Wednesday that the Chinese government will continue strong fiscal support for the economy next year to soothe the impact of an expected slowdown in the property market.

During a press briefing in Beijing, Robin Xing, the investment bank's chief China economist, predicted the world's second largest economy will hold steady, albeit slightly slower from 2016, with fiscal policy serving as the major driving force.

The Chinese economy is set to conclude the year with satisfactory growth, mainly driven by booming property sales and government-backed infrastructure investment. In the first three quarters, China posted 6.7 percent growth.

But investors are wary of next year's outlook as the property sector will likely cool after over a dozen local authorities moved to curb surging real estate prices in fear of an asset bubble and rising leverage.

Xing dismissed such concerns, saying that robust infrastructure investment supported by expansionary fiscal measures will offset the impact.

"There is much room for the government to ramp up spending and raise fiscal deficits, and policy banks can still issue a variety of bonds, including special construction bonds, to raise funds," he said.

The government plans a 3 percent deficit-to-GDP ratio for 2016, up from 2.3 percent last year.

Xing also believes drag from the housing market will be limited.

"Only homes sales in big cities will face the problem, which only make up a quarter of the country's total; many small and medium-sized cities are plagued by piling unsold apartments," he said.

Morgan Stanley forecast China's real GDP real growth of 6.4 percent in 2017, with a rapid rise of producer prices in the first quarter and mild consumer inflation throughout the year. Monetary easing measures will remain restrained due to asset bubble risks.

The investment bank brightened its forecast on the Chinese economy two months ago due to warming signs from major indicators, including freight and electricity output.

In terms of the Chinese yuan's recent weak performance against the US dollar, Xing said there is no basis for substantial depreciation given the huge trade surplus, but the currency will still face pressure from capital outflows.