Bank of China : Issued Report for 2017Q2 Economic and Financial Outlook

On March 31, 2017, Bank of China issued its report for 2017Q2 Economic and Financial Outlook (hereinafter referred to as the 'report'). In this report, there is an outlook for the global and China's economic and financial situation and the world banking industry in Q2, based on the review of 2017Q1. Meanwhile, some hot issues are analyzed in the report.

Global Economic and Financial Outlook: In 2017Q2, global economy will maintain the momentum of stable growth, the global CPI will be higher, and the international trade and investment will grow faster. The outlook of interest rate increase by the Fed is certain, investors across the globe will be more confident with bigger risk appetite, and the market will become less volatile. The U.S. government cannot solely rely on Treasury bond issuing to raise money for infrastructure construction, PPP model and tax credits are expected to be used to attract private investment. Internal structural problems remain severe in the EU, political uncertainties increase significantly and the prospect of integration has become a market concern. Europe may become a 'multi-speed Europe'. Infrastructure construction will be an engine of economic growth in ASEAN countries, multi-source financing, especially the private sector, should be encouraged.

China's Economic and Financial Outlook: In 2017Q1, the Chinese economy was driven by 'double engines' (both new and traditional ones) instead of 'single engine', and the prosperity cycle picking up continuously. The economic growth rate may stand at around 7% in Q1. In 2017Q2, unstable and uncertain factors that influence external environment will still abound. The endogenous driver of economic growth will remain weak; the sustainability of rebounding investments is yet to be tested. In the meantime, with the furtherance of supply-side structural reforms, enterprises will see their profits continue to improve, and emerging industries will grow rapidly. GDP is projected to grow by around 6.9% in Q2, showing a descending trend throughout the year. In terms of fiscal policy, efforts should be made to study the room and feasibility for continuing tax reductions so as to lower tax burdens for all. Monetary policy should remain stable but tighten gradually, with the possibility of rate increases considered when the time comes. Collaboration should be strengthened among government departments to rein in property market bubbles with an iron hand, lest the aberrant development of the real estate sector should ruin the bright prospects of the Chinese economy.

Global Banking Industry Outlook: Since 2016, global banking industry continued the trend of divergence: banks in the U.S. and UK recorded prudent operation, profitability of banks in Japan and major member countries of ASEAN was challenged, NPL (non-performing loan) ratio of Australian banks was under the increasing pressure, Brazilian banks faced a great pressure in improving their asset quality, the Eurozone banks, being still depressed, had a lot of uncertainties in their growth prospect, banks in major African countries witnessed a rapid development but the overall NPL ratio was relatively higher. Chinese banking industry maintained a positive trend of prudent growth. Looking into 2017, global banking industry is expected to improve earnings, but the asset quality issue and regional financial risks still need to be highly concerned. As to China's financial sector, the 'de-leverage' initiative will continue; NPL ratio will remain stable and possibly decline; there will be a shift in credit allocations; the downward trend of NIM will be eased; pension finance, green finance and inclusive finance are going to embrace development opportunities.

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