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03-08-2015, 11:09 PM
China’s growth engine tipped to rev up
THE AUSTRALIAN AUGUST 04, 2015 12:00AM
Paul Garvey
Resources Reporter
Perth
Gene Sperling, former economic adviser to the Clinton and Obama administrations. Picture: Travis Anderson Source: Supplied
China should not yet be written off as a significant source of economic growth, one of the White House’s most experienced economic minds says.
In a far-reaching address on the opening day of the Diggers & Dealers mining forum in Kalgoorlie yesterday, Gene Sperling — who spent more than 11 years serving as an economic adviser to the Clinton and Obama administrations — said a promising outlook for China and a continuing devaluation of the Australian dollar should offer hope to a mining industry grappling with falling commodity prices.
And Mr Sperling also urged the US Federal Reserve to take a cautious approach to raising interest rates, warning that the downside from raising too early could outweigh the downside from waiting too long.
Mr Sperling, director of the White House National Economic Council up until last year, said he agreed with forecasts that China could continue to meet its targeted 7 per cent growth rate for the next 10 to 15 years. “I have a more optimistic view of their long-term growth than a lot of people, regardless of how the immediate problems over the next quarter or two shake out,” Mr Sperling said. “They are quite committed to 7 per cent growth and I think that they have much more capacity to achieve it than people mention.”
While acknowledging that China was moving more towards consumption-led growth, rather than the export and infrastructure-led growth that inspired the mining boom, Mr Sperling believed China would continue to invest extensively in infrastructure. In addition, he said, concerns about debt within China missed the bigger picture.
“People like to say ‘oh my God they have ballooning debt’. Well they have corporate debt issues, they have issues of state-owned enterprise debt, but their government debt is 40 per cent of GDP. That would be the envy of most countries,” he said.
“They have plenty of room to do some pump-priming in the economy. Hopefully they can do it in a smarter way without the overbuilding by local governments that’s been wasteful.”
Uncertainty around China’s economic situation has been inflamed by the recent slump in its stockmarkets, which prompted the government to intervene and suspend many of the nation’s biggest stocks from trading.
While the Chinese authorities were struggling to stabilise a falling stockmarket, he said they would be more confident in their ability to stimulate the economy through infrastructure investment and stimulus.
In addition, India should not be dismissed as a future source of commodity demand growth. “If China couldn’t grow that much forever, well on the other side India can’t have this little demand forever,” he said. “It would be wise for more companies to look 5-10 years out and ask not just what is their China strategy, but what is their India strategy. Because there is no way there will not be an increase in demand.”
His optimism around China and India did not extend to gold, however. “It’s hard to be here and be wildly optimistic that the winds are heading in the right direction on the gold front,” he said.
“With interest rates in the US looking like they might be higher, with more companies in the US particular sitting on lots of cash and giving out greater dividends, there may be more people feeling that the opportunity cost of holding gold is going up.”
Mr Sperling predicted the Australian dollar to fall below US70c in the next six to nine months as the RBA continued to consider an additional interest rate cut and the US Fed moved closer to finally lifting rates.
But he urged the Fed to show patience when raising rates, despite an appetite within the body to lift rates before year end. He said the downside of waiting until January or February was minimal, while raising too quickly could prompt the US dollar to strengthen too much and rattle the US economy.
THE AUSTRALIAN AUGUST 04, 2015 12:00AM
Paul Garvey
Resources Reporter
Perth
Gene Sperling, former economic adviser to the Clinton and Obama administrations. Picture: Travis Anderson Source: Supplied
China should not yet be written off as a significant source of economic growth, one of the White House’s most experienced economic minds says.
In a far-reaching address on the opening day of the Diggers & Dealers mining forum in Kalgoorlie yesterday, Gene Sperling — who spent more than 11 years serving as an economic adviser to the Clinton and Obama administrations — said a promising outlook for China and a continuing devaluation of the Australian dollar should offer hope to a mining industry grappling with falling commodity prices.
And Mr Sperling also urged the US Federal Reserve to take a cautious approach to raising interest rates, warning that the downside from raising too early could outweigh the downside from waiting too long.
Mr Sperling, director of the White House National Economic Council up until last year, said he agreed with forecasts that China could continue to meet its targeted 7 per cent growth rate for the next 10 to 15 years. “I have a more optimistic view of their long-term growth than a lot of people, regardless of how the immediate problems over the next quarter or two shake out,” Mr Sperling said. “They are quite committed to 7 per cent growth and I think that they have much more capacity to achieve it than people mention.”
While acknowledging that China was moving more towards consumption-led growth, rather than the export and infrastructure-led growth that inspired the mining boom, Mr Sperling believed China would continue to invest extensively in infrastructure. In addition, he said, concerns about debt within China missed the bigger picture.
“People like to say ‘oh my God they have ballooning debt’. Well they have corporate debt issues, they have issues of state-owned enterprise debt, but their government debt is 40 per cent of GDP. That would be the envy of most countries,” he said.
“They have plenty of room to do some pump-priming in the economy. Hopefully they can do it in a smarter way without the overbuilding by local governments that’s been wasteful.”
Uncertainty around China’s economic situation has been inflamed by the recent slump in its stockmarkets, which prompted the government to intervene and suspend many of the nation’s biggest stocks from trading.
While the Chinese authorities were struggling to stabilise a falling stockmarket, he said they would be more confident in their ability to stimulate the economy through infrastructure investment and stimulus.
In addition, India should not be dismissed as a future source of commodity demand growth. “If China couldn’t grow that much forever, well on the other side India can’t have this little demand forever,” he said. “It would be wise for more companies to look 5-10 years out and ask not just what is their China strategy, but what is their India strategy. Because there is no way there will not be an increase in demand.”
His optimism around China and India did not extend to gold, however. “It’s hard to be here and be wildly optimistic that the winds are heading in the right direction on the gold front,” he said.
“With interest rates in the US looking like they might be higher, with more companies in the US particular sitting on lots of cash and giving out greater dividends, there may be more people feeling that the opportunity cost of holding gold is going up.”
Mr Sperling predicted the Australian dollar to fall below US70c in the next six to nine months as the RBA continued to consider an additional interest rate cut and the US Fed moved closer to finally lifting rates.
But he urged the Fed to show patience when raising rates, despite an appetite within the body to lift rates before year end. He said the downside of waiting until January or February was minimal, while raising too quickly could prompt the US dollar to strengthen too much and rattle the US economy.