China’s Economy: 6 MONKEY Forces for the Year of the Monkey


​Wouldn’t you like to know what the future holds for China’s economy? 

According to Chinese astrology, people born in 2016 – the year of the fire monkey – will be ambitious and adventurous, but irritable.

No, we do not suggest extrapolating from the new lunar cycle to global markets’ fate. Then again, social psychologist Philip Tetlock famously quipped how experts are only slightly better at making predictions about economic developments than a dart-throwing chimpanzee (or chance).

So perhaps it is apt that our latest Economic Insight report refers to ‘6 MONKEY forces’ that will drive the economy of China this year and affect global markets as a whole. 


To be clear, we did run an in depth analysis, and MONKEY is an acronym. It stands for Markets, Ownership, Non-payment, Kapital expenditure, Exports and the Yuan.

Here’s the rundown:

Markets’ financial volatility will remain high, reflecting an unbalanced rebalancing as the Chinese economy shifts from a focus on manufacturing and industry to services and consumption. GDP growth is set to decrease: +6.5% in 2016 and +6.4% in 2017. Having said that, the analysis concludes that at this stage, volatility is more the symptom than the source of the problem.

Ownership means that policymakers should step up easing measures. Expect a rise in the deficit target to -3.5% of GDP, an even more eased monetary policy and a weaker currency (6.8-7 RMB for 1 USD). Clearer choices and communication will be key to reassure the private sector and address the country’s trilemma of policy issues – currency, growth and funding. 

Non-payment: In 2016, insolvencies will increase by +20% and companies’ Days Sales Outstanding (DSO) could extend to 84 days. Corporate debt is high (160% of GDP) and industrial sectors such as heavy machinery, construction and commodities might become more indebted. Industries more reliant on consumer demand, such as food and electronics, or subject to government targets (aeronautics, automotive) should experience more limited credit risks. 

Kapital expenditure i.e. investment: Company profits are expected to stabilize after a -2% decrease in 2015 on the back of modest sales volumes, deflationary pressures and tepid external demand. But investment growth will be below +5% in real terms for the first time in 25 years. Ongoing deleveraging, capital flight and lower FDI will limit investment financing. 

Exports black hole: China has been on a trade roller-coaster for the past year with limited export revenues in USD terms. This  caused major disruption to its most important suppliers of raw materials such as Malaysia, and across Latin America, Middle East and Africa. Partner hubs from Singapore, through Hong Kong to Taiwan are also reeling. Solace could come in the form of massive trade initiatives. The ambitious ‘One Belt, One Road’ program which foresees a 21st century land and maritime Silk Road is one example that comes to mind. 

Yuan: The list of downward pressures on the local currency is striking. It includes weaker export performance, tighter monetary policy in the U.S. and high deflationary pressures. In the short run, competitiveness gains would be largely offset by another miscommunicated depreciation.

At the end of this brief summary of the full analysis, we go back to the somewhat-entertaining and critical issue of predicting future business risks and opportunities. Using more metaphors drawn from the animal kingdom (but not the stars), Tetlock found that greater prediction success can be related to an expert’s cognitive style. 

“Foxes”, who have knowledge about many things, do better than “hedgehogs” who know a lot about one area of expertise. 

As it happens, that is exactly what we aim to do at Euler Hermes’ Economic Research: learn about various countries and regions, gain insights into a wide array of industries and sectors.

The real economy, after all, is a jungle - not a vivarium. 

Wishing you a prosperous New Chinese Year.

Ludovic Subran

Chief Economist

Euler Hermes

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