Healing economy augurs well for future
Analysts foresee stable growth, robust pipeline for funds in the second half ofyear
Stability is a good word. As the economy's performance data for July point to a return tostability, so does the stock market.
Between now and the next major policy statement, the earliest being in mid-September, allChina stocks listed at home and overseas are likely to enjoy a period of stability rare for theyear. In the A-share market, investors are less likely to see repeated falls of the ShanghaiComposite Index to below 2,000 points, as they did in the previous few months of theyear.
Last month the industrial production of large enterprises, closely linked to the growth ofGDP, rose 9.7 percent year-on-year, compared with 8.9 percent in June, and the biggestincrease since February.
China seems to possess a lot of policy ammunition to steer its economy clear of a collapse.Analysts are forecasting stable growth, if not slow, cautious acceleration, in the third andfourth quarters.
In the meantime, because all local governments undergo a major stocktake of theiroutstanding debt by the National Audit Office and banks understandably rein in their loanprograms, more companies will try to raise funds from the capital market.
However, there are different types of growth.
There are regions that rely mainly on growth from the service sector and new industriesand regions held back by old industries plagued by low product prices, pollution andovercapacity. Just because there are different types of growth, there are different types offundraisers, in both the secondary market and the direct-investment market.
Investors will probably walk away from the local governments and companies that justclaim to own mega projects - unless they can show a balance sheet (a real one, of course) ofless debt and, most importantly less debt tied to projects that may take many years togenerate a cash flow.
Investors and financers do not usually ask the fundraising local governments and theiraffiliated companies to report their debt situation, simply believing that China will never leta government entity go bankrupt, as would probably happen in other countries.
But without going through the short pain of bankruptcy, some local governments and theirfinancial vehicles may have to go through a long pain (bankruptcy is a long process afterall) of being forced to rebalance their projects and resources. If this happens, investors andfinancers can earn nothing and do nothing except wait in despair.
To be sure, builders of many second-and third-tier cities' CBDs and imaginary high-endshopping arcades, large shopping centers and high-rise office towers would have lesschance to reap a quick return as they once expected.
If a local government owns many such projects, it may have to sell them.
Local governments and their financial vehicles are unlikely to be attractive fundraisers inthe capital market for the remainder of the year. Large banks, which used to make easymoney by lending to them, would also have to go through their own consolidation.
The really welcome fundraisers, as in any market, are those with light debt and quick cashflow. They are the builders of houses for the common people, exporters that are stillincreasing exports, the manufacturers that are still selling their products en masse, thesuppliers to major central government projects (such as makers of high-speed trains) andthe services that understand how to please urban young people.
Banks will only start to be interested if they are asked to help local governmentsrestructure their debt.
（Editor：WangXin、Chen Lidan）
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