Consumption, innovation to drive China growth

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Speaking from the sidelines of the Fortune Global Forum in Guangzhou, China, Ulrich highlighted China’s newest inventions: “China’s payments system is number one in the world in terms of size and sophistication, and also the sharing economy. So we’re really seeing innovation taking hold in the whole economy.”

Many Chinese tech companies are “planting seeds” in Southeast Asia and North Asia, and Ulrich said she expects more to venture abroad.

China’s economic growth has largely surpassed expectations this year, helped by a global recovery in exports. That has boosted corporate earnings and allowed the country to cut financial leverage, which has been a key source of concern among investors.

An increasing number companies in the troubled steel industry, a major source of risky debt in the Chinese economy, are profitable now, Ulrich said. She noted that 85 percent of steel companies are making money today, compared to just 5 percent two years ago.

“For the first time since the financial crisis, financial leverage in China is coming down because corporates, the heavy borrowers from banks, are finally making a lot of money,” she said.

“So they’re paying down some of their debt, and, as a result, we’re seeing leverage ratio coming down. Having said that, many Chinese banks have grown so rapidly therefore as you grow, as you lend, you need more capital. So I think for the smaller banks, in particular, they need to replenish their capital position before they can grow into the new year,” added Ulrich.

The International Monetary Fund on Thursday morning released its assessment of the Chinese financial system. It said a stress test of 33 banks, which account for three quarters of total banking assets, revealed that 27 of them were under-capitalized.

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