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1/11/16

China: Don't blame the economy for China's latest market meltdown - by Xiaoyi Shao and Pete Sweeney

A renewed plunge in Chinese stock markets has stoked concerns among global investors about the health of the world's second-biggest economy, but there is little evidence that the outlook for China has darkened dramatically in recent weeks.

China's economy lost steam steadily through 2015 and economists are split over when they expect it to bottom out. Auto and property sales are showing signs of life, however, and few are predicting the kind of "hard landing" that the recent tumble in share prices might suggest.

"I think there is little connection between the falling stock markets and the real economy," said Shen Lan, an economist at Standard Chartered in Beijing. "Actually, economic indicators in November already showed the economy gained more momentum."

China has topped investors' concerns at the start of 2016, with a 10 percent slide in Chinese equities last week triggering a broad sell-off in riskier assets. China's benchmark share indexes fell a further 5 percent on Monday.

Manufacturing and investment, the twin engines of China's breakneck growth over three decades, have been suffering a prolonged slowdown as Beijing attempts to guide its economy on to a more sustainable path led by domestic consumption.

The problem for policymakers has been that consumers have not been able to pick up the slack fast enough to offset falling industrial demand.

"The economy is likely to slow further in 2016 as a result of persistent excessive capacity problems," wrote analysts at OCBC Bank in their outlook for the current year.

"On a positive note, the transition toward a service and consumption-driven economy is likely to provide a buffer to China's growth. Therefore, we expect China to grow around 6.7 percent in 2016.

Read more: Don't blame the economy for China's latest market meltdown | Reuters

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