China Sustainability Drive Gives Bulls Hope, Morgan Stanley Says

(Bloomberg) -- Morgan Stanley’s top China analysts are "still bullish" on the economy, citing progress on defusing the debt bomb and the surprising speed of its shift to a high-income economy.

Economists, analysts and strategists said in a 61-page report that they expect Beijing to tame borrowing and achieve a "near-stabilization" of its debt-to-gross domestic product ratio by late 2019. Incomes are expected to cross the $13,700 threshold to attain high-income status by 2025, two years earlier than they’d initially forecast.

President Xi Jinping put new emphasis on the sustainability, quality and efficiency of economic growth at a twice-a-decade Communist Party conclave last month, but risks remain.

Investors are concerned by rising debt, the outlook for maintaining supply-side reforms and tightening measures on home sales that "could cause a sharp adjustment with an attendant impact on growth," Chetan Ahya, co-head of global economics at Morgan Stanley in Hong Kong, wrote this week in the follow-up of a February note.

"Our view remains that China will be able to navigate these challenges and continue to move toward becoming a high-income economy," Ahya wrote with co-author Jonathan Garner, chief strategist for Asia and emerging markets. "Confidence in our thesis has increased over the past few months considering the better-than-expected progress thus far and the continued strong emphasis on ensuring ‘sustainability’ of growth."

China’s total debt will be 292 percent of output in 2019 and 328 percent in 2022, up from 162 percent in 2008, according to Bloomberg Economics estimates.

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