China to grow at 6.2% in 2016; 5.8% in 2017: UBS

China reported a 6.7 percent on-year gross domestic product (GDP) growth in the first quarter of 2016, slightly lower than last year’s 6.8 percent. The numbers have been in line with market expectations. Raymond Yeung, Senior Economist at Greater China, ANZ, expects the world’s second largest economy to maintain the same growth in Q2 on back of positive movements in housing and loan sectors.“The pick-up in the housing cycle will be very encouraging and it seems to be supporting the growth momentum in the near-term,” Yeung said. However, Hartmut Issel, Head-Equity & Credit APAC of UBS, says that the pronounced strength in property may not last in coming quarters. Issel expects China’s economy to grow at 6.2 percent rate this year and 5.8 percent for the next year.James Roy, Principal at China Market Research, expects a 6.4-6.5 percent growth for China this year. “Services and consumption account continue to be the main drivers for Chinese growth going forward,” Roy said. Below is the verbatim transcript of Raymond Yeung, Hartmut Issel and James Roy's interview with Latha Venkatesh and Reema Tendulkar on CNBC-TV18.Latha: The numbers, gross domestic product (GDP) in line with expectations, what are your first thoughts?Yeung: Yes, 6.7 percent growth rightly is with the market expectation. Seems like basically we have had a recovery of manufacturing sectors also consistent with the March release of purchasing managers' index (PMI) as well. So, today's data is not entirely surprising but obviously there are a slew of March indicators that has also been the market expectation that we take the data released today positively.Reema: While 6.7 percent for Q1 GDP is bang in-line with street expectations, it still marks a moderate decline from 6.8 percent that we saw in the prior quarter that is Q4 of CY15. What would your prediction be for the coming quarters and will we continue to see Chinese economy slowing although at a very moderate pace?Yeung: It seems to be the case that Q2 condition will sustain. What we have seen in Q1 because this time around there are a clear evidence showing that there is a recovery in the housing sector especially with the pickup in the housing market seems to have spurt some of the housing investment and construction activities, loan growth data also witnessed such a change because the loan to real estate related credit is also strong. So, this pick up of the housing cycle will be very encouraging and it seems to be supporting the growth momentum in the near-term.Latha: The fact that it came in at 6.8 percent, would that be a bit of a worry? Does it mean that China is going back to its output producing things, which probably nobody is using, is it, likely to put any question marks on China's ability to move from a manufacturing giant into a services economy?Issel: I don’t think structurally it puts a question mark but in the short run, on one hand of course, we are happy to see stabilisation or even slight acceleration on the numbers and we have seen it across the board. A bit of a caveat or maybe two caveats, I should mention quickly, one is we have seen that the financing side, new loans, aggregates, financing jumped up a lot higher than anyone expected. So, that raises potentially also the question about the indebtedness which we know that Chinese authorities want to at least cap overtime. So it doesn’t look at first glance as though this has happened curbing off debt to the extent that also probably raises a few questions.The second caveat I also wanted to make is that, at least in our houseview and looking out over the next couple of quarters, we do not think that the pronounced strength we have seen out of property is likely to last throughout the next quarters either.Reema: The recent data suggests that the Chinese economy is slowing not just the Q1 GDP, which came in line with expectation but exports rose 11.5 percent in March, the official PMI notched back above 50 mark, what does this mean in terms of further stimulus from the Chinese government whether its monetary or fiscal?Issel: I think the fiscal side is here to stay because if you look structurally, this transition away from industrial overcapacity, if you are serious about it, comes from the investment component of your GDP, of your growth. So it doesn’t go away, but the fiscal will stay with us and we have a very clear announcement month ago from the Chinese government that they will probably increase their budget deficit by about one percentage point throughout this year. I don’t think they are going to take that away but on the monetary side, I would also think that especially if we think about the room that the People's Bank of China (PBOC) have to do a lot more on debt side is getting limited and we think that they are probably not going to use much of it anymore although on the reserve ratio, they can probably bring those down a little bit yet but the focus probably from hereon is on fiscal.Latha: I was wondering whether you will worry about the fact that loan growth has almost doubled to 1.3 trillion yuan as our guests have been telling us. There have been huge problems or huge worries over Chinese indebtedness and the problem of bad loans not being addressed not even being recognized, will this growth in loans be something that markets will start worrying about in the days to come?Roy: I think we could see loan growth worries continuing to increase going forward. But in terms of the consumer component of the economy, we still are seeing very strong signs here.Bad loans have had been an issue in China and if they are not addressed, they can continue to be pretty serious drag on the economy. So, I think they will see increased attention to this going forward.Reema: We know that the Chinese government is trying to move the economy from manufacturing to consumption. Does the recent data including this throw any light and how much of the growth in account of manufacturing and how much of it is in account of the new focus area of consumption and services?Roy: Yes, so manufacturing has been slowing for some time now and it is at around 6 percent or slightly lower now while you are seeing consumption at a higher level at around 8 percent, agriculture down closer to 4 percent, but now services for the first time ever in China greater are than 50 percent of GDP. So you are now seeing services and consumption account continue to be the main drivers for Chinese growth going forward.