Careful economic management needed in China

By Li Hong Source:Global Times Published: 2017/11/16 23:13:40

Illustration: Peter C. Espina/GT

As China's giant economy takes on an increasing role in fuelling economies elsewhere, any hiccup or slight slowdown can cause global concern.

The world's second-largest economy reported GDP growth of 6.8 percent for July-September, down from 6.9 percent in the previous two quarters. This piece of news immediately triggered a round of pessimistic forecasts from international market watchers about Chinese economic trends. Some even predicted China's GDP growth would drop below 6 percent in 2018 and fall further in 2019.

But in contrast to the gloomy and dark predictions of some Western pessimists, the new leadership lineup coming out of the just-concluded 19th National Congress of the Communist Party of China (CPC) are upbeat.

Although they didn't set any explicit targets, the leaders have complete confidence that, from now on, this country will be economically and militarily stronger, year by year. Furthermore, the country has embarked on a technical shift from high-speed development to high-quality growth.

From the "new normal" years beginning in 2013 to the current "new era," the economic landscape of this massive country has seen considerable change. As a result, a majority of Chinese families are experiencing substantive improvements in their lives.

Chinese economists say that in this new era, the country will generally place more emphasis on quality of growth, while maintaining fairly rapid GDP growth. The State Council, the cabinet, is expected to propose an annual economic development pace to the National People's Congress (NPC) in early March when the legislature convenes in Beijing.

Based on the raft of policy initiatives approved by the 19th CPC National Congress, the economists assert that the central government will tilt toward quality development by investing more in high-tech industries led by new energy, the Internet and artificial intelligence, while also cutting back on fossil fuel consumption to clean the skies. China has promised to cut its carbon emissions per unit of GDP by 60-65 percent by 2030 from the level in 2005 to fulfill its commitment to the Paris climate agreement. 

At the same time, the increasing competitiveness of Chinese-made products will continue to prop up foreign trade, the economists believe. Also, as the purchasing power of Chinese households strengthens, the country can count on rising domestic consumption to buttress brisk economic growth.

And in case of times of economic difficulty, the central government has the option of boosting infrastructure investment - as it has done in previous downward cycles - to prevent the engines of growth from sputtering. Ever since 1978, China has never paused in modernizing its infrastructure, adding ever more shiny roads and bridges, high-speed railways, city metro systems and other public utilities.

The new city clusters like Beijing, Tianjin and Xiongan, and the dots of cities along the Yangzte River, all of which were choreographed by the top leadership, will help to prop up the "new era."

Also, with the Belt and Road initiative gaining momentum and broad reception, China could help the participating economies build up the quality of their infrastructure projects, which naturally will act as launch pads for economic growth. In the meanwhile, China can reap the benefit of rising trade and investment windfalls.

However, there are still some uncertainties about the prospects for China's economy, and fine management skills at the top will be needed to deal with them.

Among them, debt levels at the local government level and at a number of corporate firms remain fairly high. The government campaign against riskier lending has pushed up borrowing costs, which could further inhibit corporate earnings.

Although many won't query the government's ability to bring 43 million rural residents out of poverty by 2020, the growing wealth divide among different households is still an issue, which may negatively impact the morale of many citizens and affect social cohesiveness.

A recent report claimed that outstanding Chinese household debt doubled between 2012 and 2017, as more households had to borrow to pay back mortgage loans or borrow from relatives in order to buy a home.

Another challenge facing the government is the integration of China's financial system with the international one. The US Federal Reserve has begun to let a small portion of its $4.5 trillion balance sheet mature without being replaced, starting in October with reductions of $10 billion a month and gradually rising to $50 billion a month in 2018.

The move, while incremental, will inevitably have a ripple effect on China's financial stability. If the US dollar continues to rise in value - responding to the balance sheet reduction and Fed rate hikes - China's central bank may face rising yuan depreciation pressure. Against this backdrop, many economists have urged Chinese policymakers to take bolder moves to liberalize the yuan, and make it fully convertible with other currencies.

The author is an editor with the Global Times.

Posted in: INSIDER'S EYE

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