China, parallel public financing

CESCE, Country Risk

The World Bank has warned about the lack of fiscal discipline among Chinese local governments, whose spending routinely exceeds their budgets.

[Img # 23114] Competition for Airbus and Boeing. La Commercial Aircraft Corporation of China (COMAC) The first test flight of the C919 passenger aircraft has been carried out. This aircraft has a capacity of 158 passengers and aims to compete with the Boeing 737 and the Airbus A320. It is the first aircraft of its kind built in [country name missing]. ChinaMost of its components come from the Western aeronautical industry, including the engines, which are of North American and French origin (GE and SNECMAProduction will begin in 2019, and there is already an order book of 570 aircraft. Currently, the C919's technical and fuel consumption characteristics make it uncompetitive in the global market, so its main appeal would be its significantly lower selling price compared to its competitors. Furthermore, it will need to obtain flight and safety certifications. Europe and the USAin order to be able to land at the airports of these countries. The advantage of COMAC is having a captive market in Chinawith sufficient size to carry out this project. The Chinese company is also studying the possibility of building a much larger and longer-range aircraft in collaboration with Russian manufacturers.

Parallel public funding. The World Bank It has warned about the lack of fiscal discipline among Chinese local governments, whose spending routinely exceeds their budgets. As a result, a growing debt has accumulated, increasing the risk of a financial system crisis. Following the 2008 crisis, the practice of using public spending on infrastructure to prop up the economy led provinces, municipalities, and other local governments to incur unreasonable levels of debt. Starting in 2014, the central government attempted to control and eliminate special financial products that allowed these governments to circumvent the direct borrowing ban.

But, according to the World BankIn the 2015-2016 period, off-balance-sheet financing continued to grow at a rate of 22-25%. These administrations are aware of the difficulty of maintaining investment growth at rates of 16% annually if they accept from the outset a certain degree of fiscal sustainability, which would have a significant impact on economic activity. This explains their reluctance to discontinue this practice.

Contact foreign trade and inflationDuring April, Chinese exports, expressed in dollars, grew by 8% year-on-year. In March, they grew by 16,4%. This strong rebound is partly due to the low figures for 2016, as last year the Asian giant's exports fell by nearly 8%. Sustained demand for North America, Europe, and Japan They are behind this positive result. Conversely, imports in dollars slowed down due to low prices for oil, coal, and iron ore.