Bank of China : Issued Report for 2017Q3 Economic and Financial Outlook

On June 28, 2017, Bank of China issued its report for 2017Q3 Economic and Financial Outlook (hereinafter referred to as the 'report'). In this report, there is an outlook for the global and China's economic and financial situation and the world banking industry in the second half of the year, based on the review of the first six months in 2017. Meanwhile, some hot issues are analyzed in the report.

Global Economic and Financial Outlook: In 2017, the global economy may start with a higher growth and then slow down, the global CPI will be higher, and the international trade and investment will grow faster. Though the global monetary and financial environment will stay accommodative in general, which is good for financial stability. The risk that the policies in developed economies noticeably deviate from market expectations calls for attention. The fed will start the balance sheet shrinkage as early as the second half of the year. If the previous open market mode is adopted, the cut will be around USD2.7 trillion, which will exert considerable impact on the world's economic situation. The effect of unconventional monetary policy is obvious in Europe, but has not realized the fundamental recovery. The ECB's monetary policy will return to normal with a great amount of caution. The Japanese economy has shown stronger signs of recovery. BOJ will not quit QE in the short term if Japan's inflation has not been significantly and continuously improved. The economic situation in some Latin American countries such as Brazil and Argentina improves. However, against the backdrop of low commodity prices, trade protectionism of the U.S., and the Fed's interest rate hike and policy normalization, the economic recovery of Latin America is still gloomy.

China's Economic and Financial Outlook: As a result of an improving external environment, rising commodity prices and a recovery in the real estate market, China's economic climate has improved in the first half of the year. Both new and traditional drivers of growth have strengthened and there is good synergy between supply and demand, investment and consumption, and industrial production and business efficiency. Our initial estimates suggest that in the first six months, China's GDP grew by around 6.8%, 0.1 percentage points higher than this time last year. In the second half of the year, although the external environment will continue to improve and become more stable, the domestic economy will face greater uncertainty. We project that GDP will grow by about 6.7% in Q3, with GDP growth in 2017 at 6.8% or so. From a policy perspective, special attention must be paid to the interaction between different policies to avoid excessive overlap. As the current economic recovery lacks a solid foundation and endogenous drivers of the economy are still weak, it is essential to strike a subtle balance between financial deleveraging and steady economic growth, and to avoid stifling a recovering economy due to simultaneous tightening of fiscal and monetary policies.

Global Banking Industry Outlook: In 2017Q1, overall operation of global banks changed better with varied improvement in size, profitability and asset quality, American and Chinese banks grew steadily, banking performance in the UK, Eurozone, South Africa and ASEAN revived, but banking industry of Japan and Brazil were still under heavy pressure. China's listed banks reported a steady increase of assets and liabilities, quicker growth rate of net profits, steadily higher contribution of non-interest income, eased momentum of double hikes in NPL amount and ratio, steady reduction of allowance-to-NPL ratio, stable but increasing capital adequacy ratio (CAR) and sound operation overall. Looking into the second half year of 2017, the economic and financial landscape of the world will still hide great uncertainties and we should wait and see whether the recovery of global banking industry will sustain; credit growth rate of Chinese banks will pick up speed moderately, the credit distribution will continue to readjust, the declining trend of net interest margin (NIM) will be eased, the NPL ratio will remain basically steady and inclusive finance will embrace great development opportunities.

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