China's economic rebalancing act: What to look out for in 2017
After years of booming economic growth, it was thought by some up until recently that China was not subject to the normal rules of economic and financial gravity and that the country's growth would go on forever. However, after the financial crisis many came to realize that China's economic growth was heavily reliant on government debt-fueled investment and if that trend continued a serious 1990s Japan-esque economic collapse could be on the cards. Chinese authorities decided that growth needed to slow down and a lower "new normal" for growth has been targeted. And so it has begun in recent years. China's economic growth has steadily come back down to earth, as Chinese authorities have begun an economc rebalancing toward a more sustainable consumption-based economy.
We sat down with our Head of Economic Research and China Senior Economist Ricard Torné so he could give us an update on China's economic rebalancing and outlook for the 2017 and beyond.
What are China’s biggest economic challenges this year?
China’s main economic challenges for this year continue to be the implementation of economic reforms and tackling macroeconomic imbalances, while keeping growth broadly stable. The main downside risks to China’s economic outlook are a sharp correction in the property market and rising protectionist trade policies. Our Consensus Forecast sees GDP expanding 6.5% in 2017 before decelerating to 6.2% growth in 2018.
What reforms are China likely to undertake in the near future?
According to announcements made at this year’s National People’s Congress, the government will focus this year on reducing overcapacity in certain sectors, improving the corporate governance of State-Owned Enterprises (SOE) and encouraging mixed ownership of these, particularly in the electricity, oil, natural gas and railway sectors. Tackling the property market, the government will adopt a two-speed approach of encouraging home purchases in tier 3 and 4 cities, while boosting land supply and keeping some restrictions in cities that have experienced a strong rise in prices.
In order to contain rising leverage and financial risks, authorities are adopting a slight tightening bias for monetary policy. That said, the government is providing stimulus via a more accommodative fiscal policy to ensure that growth remains strong. While authorities will likely tighten regulation on shadow banking, their approach will be gradual in order not to squeeze credit growth.
Is China's current growth model sustainable, in your opinion? Why?
China’s traditional economic model was not sustainable as it relied heavily on cheap credit, massive investments and a fluctuant external sector. The old system generated large macroeconomic imbalances and constrained private consumption. However, the country is now moving towards a new model based on services and domestic consumption that should eventually be more sustainable.
As the Chinese government controls the financial system, why wouldn’t they continue increasing the ratio of debt to gross domestic product to keep growth going strong?
In order to keep the old economic model afloat, authorities needed to inject substantial funds to generate growth, and they did so in large part by boosting state-owned companies’ debt. The Chinese government’s tight grip on the financial sector meant it could choose repeatedly to divert money to companies—a pattern which would have been unsustainable in most other economies.
Although China may be more capable of continuing down this path to achieve higher rates of growth, authorities are aware of the problematic nature of the situation in the long run. They unveiled new regulations last year, such as a debt-to equity swap programme, to reduce excessive corporate debt.
Has China reached a point where it can open up capital flows to help with its economic rebalancing?
China has started opening up its capital account in recent years but there is still a long way to go. Increasing competition in the financial sector, allowing market forces to have a more decisive role in capital allocation and permitting even greater exchange rate flexibility are key to ensuring a successful opening up of the capital account.
China decided that its massive trade surplus was no longer sustainable and consequently increased investment recently. Are there any future consequences of this down the road?
Growth heavily fuelled by investment alone is not sustainable in the long term, just as growth fueled overwhelmingly by trade was not either. China needs to focus on achieving more broad-based and sustainable growth by boosting private consumption and services, in line with the government’s aims for its new growth model, though this will take time to materialize.
Chinese authorities will continue to support the economy via investment if the economy requires any help to maintain stable growth. Therefore, the current pattern is expected to remain in place in the coming years.
If China doesn’t grow by its target of 6.5%, what could happen? Could there be social unrest?
In order to preserve social stability, the authorities intend to keep unemployment low and ensure that citizens continue to reap some of the benefits of China’s stellar growth. They will not allow a massive economic downturn, which would have the potential to trigger social unrest and threaten the dominance of the Chinese Communist Party. If the risk of a serious downturn arose, they would intervene in the economy or slow down the transition to the new growth model in an attempt to avoid it.
Read our latest economic outlook for China or you can download a sample of our FocusEconomics Consensus Forecast for China by click on the link below.
5-year economic forecasts on 30+ economic indicators for 127 countries & 33 commodities.
Date: May 16, 2017
TagsPrecious Metals Commodities USA Agricultural Commodities Emerging Markets Japan Bitcoin Iran UK Nordic Economies Base Metals Commodities Major Economies Inflation Banking Sector Latin America Asia OPEC Eastern Europe Gold Cryptocurrency G7 Consensus Forecast Vietnam Ukraine Greece Spain precious metals Russia Australia South Africa Euro Area Economic Growth (GDP) oil prices Housing Market Commodities Colombia United States European Union Turkey MENA China India Brazil Canada United Kingdom Forex IMF Unemployment rate Energy Commodities Italy Argentina Company News Tunisia Germany Mexico Sub-Saharan Africa Investment Oil Brexit Trade Africa Infographic Exchange Rate France Venezuela Portugal Healthcare
Concerns about supply and healthy demand for agricultural products are expected to boost prices. Get price forecast… https://t.co/IrZqMNXer3
1 hour ago
Dominican Republic expected to grow 4.5% in 2018 and 4.4% in 2019. https://t.co/pbNXEn1uhj
2 hours ago
Precious metal prices for Q4 2018 seen rising 2.7% YOY and 2.9% YOY in Q4 2019. https://t.co/7XITZDvWA8
3 hours ago
Few institutions are as treasured, or can spark such passionate debate, as a country's healthcare system. But which… https://t.co/kg1wR5wd0j
7 hours ago
8 hours ago
- How Student Loan Debt Affects the Economy
- 2018 & 2019 Economic Outlook for the Top Oil Producing Countries
- A Look at Healthcare Models Around the World
- Nearly a Third of Latin Americans Have No Right to a Pension
- Venezuela's Electoral Conundrum
- The Poorest Countries in the World
- Newly-elected Chilean President Sebastian Piñera faces a myriad of challenges - economic and otherwise
- The Economic Effects of Trade Protectionism
- Regional Disparity: The Dark Side of Inequality in Latin America
- Coal: The story of the world's most abundant fossil fuel
- Gold: The Most Precious of Metals (Part 3)
- Trump's 1st Year: 95 Analysts Surveyed on U.S. Economy
- The Latest on China and What's in Store for 2018
- An in-depth look at the Eurozone’s booming economy and the challenges that lurk in the shadows
- China’s growing influence on the Latin American economy
- Top Economics & Finance Blogs of 2018
- How Latin America emerged from recession in 2017
- Is this the beginning of the end for Bitcoin?
- Risks and Opportunities for 2018 - Daniel Lacalle
- Emerging Markets 2018 Economic Outlook
- The role of FDI in Vietnam’s socio-economic development
- Increasing poverty in Latin America takes a breather thanks to improving economic dynamics
- What will be the most miserable economies in 2018?
- The World's Top 10 Largest Economies
- Is Spain doing enough to address its high youth unemployment rate?
- Has Latin America gone far enough in reducing barriers to international trade?
- Commodities Outlook: Oil, Natural Gas, Coal, Lead & Tin
- 21 experts tell us what the future looks like for cryptocurrencies and blockchain
- Turkish lira plummets to all-time low on Erdogan’s monetary feud and tense U.S.-Turkey relations
- Copper: The first metal mastered by man
- The Mercosur-EU Free Trade Agreement: Obstacles & Opportunities
- Nigerian Economy Still Treading Water Thanks to Oil Sector
- Elections in Chile: What the results could mean for the economy
- QE’s Untold Story: A Chart That Fed Correspondents Need To Investigate
- Holland’s fragile one-seat majority government targets economic growth at the expense of fiscal sustainability
- South Africa: Economy at a tipping point?
- Latin American Commodities: What’s behind the increase in demand and prices?
- Is the UK really "shackled to a corpse"?
- Spain-Catalonia: 7 economic experts weigh in on how the situation will affect the outlook
- How well is Spain's labor market doing since the crisis?
- Which countries will have the highest and lowest inflation in 2017?
- How vulnerable is Latin America to economic crises today?
- Iron ore facts and common questions answered
- The bulging economic costs of obesity
- How much investment is needed to salvage Latin America’s crumbling infrastructure?
- A Look at the Potential Impact of Brexit on the Dutch Economy
- Emerging Markets Are Kicking Into Higher Gear In 2017
- Why is foreign direct investment in Latin America falling again?
- Are Central Banks Nationalising the Economy?
- Bounty or burden? The impact of refugees on European economies is far from clear
- What’s the future of U.S.-Latin America trade relations?
- Taxes or cutbacks? Latin America's challenge of sustaining spending without causing debt to skyrocket
- Are uranium prices making a comeback?
- Taxing the Economy: Achieving a Delicate Balance
- How will Latin America’s upcoming lengthy election cycle affect the reform agenda and credit ratings?
- How will emerging market economies perform in 2017?
- Chilean Economy in Focus: Interview with Senior Economist of the Chamber of Commerce of Santiago
- CEOs Rank Top Economies for Growth Opportunities
- The Mobile Ecosystem & Latin America's Economy
- Prospects and Challenges for the Global Economy: Interview with Tim Cooper from BMI Research
- How will the Fed reduce its balance sheet & and how will the ECB end QE? - 19 economic experts weigh in
- Thoughts on "unwinding" QE from Frances Coppola
- The Fed and ECB at a crossroads: Unwinding QE
- Spain: The economy that continues to silence the critics
- Latin America: The Most Unequal Region in the World
- The History of OPEC: Has it been a Success?
- FocusEconomics Announces 2017 Analyst Forecast Awards Winners
- Latin America’s rising unemployment bucks nearly decade long trend
- Escape from the Central Bank Trap by Daniel Lacalle
- China's economic rebalancing act: What to look out for in 2017
- Driving Growth in Latin America: Challenges & Priorities
- Is the Global Economy Rebalancing?
- Commodity exporters face challenging times
- Recent Global Events Facilitate Mercosur-Pacific Alliance
- 23 economic experts weigh in: Why is productivity growth so low?
- Mexico's outlook as Trump nears 100-day mark
- Interview with Oxford Economics Senior Economist on implications of the possible outcomes of the French Presidential Election
- The anxiety of the small saver in a world of negative interest rates
- Brexit negotiations. Between Uncertainty and Urgency
- An Economic History of the EU from El Blog Salmón
- Baby Boomin': Implications of high population growth in Latin America
- Survey of International Economists Predicts a Le Pen Defeat in French Elections, Says Macron has Best Economic Plan
- Spain in a global context: developed economy with some challenges
- How much is crime costing Latin America?
- Predictions & Estimates from Economist Daniel Lacalle
- What economy will the new Dutch government inherit?
- “The data is not a true reflection of reality in India” Interview with Société Générale India Economist
- What are the prospects for Emerging Economies in 2017?
- What to expect in Asia for 2017
- Top Economics & Finance Blogs of 2017
- Latam to Resume Moderate Growth in 2017 but Important Risks Plague Outlook
- 4 Key European Elections That Will Impact the Economy in 2017
- How are security concerns and political chaos affecting Turkey’s economy?
- Global growth to edge up in 2017
- Set to breach targets again? Debt and deficit outlooks for Southern European Eurozone countries in 2016 & 2017
- What does Donald Trump mean for the U.S. economy?
- How will emerging markets perform in 2017?
- The economic impact of a break in U.S.-Philippines ties
- Trump election: Base metals surge due to infrastructure plan
- 5 updates on the Venezuelan economic crisis
- Canada: When your neighbor’s house is on fire…
- Short-term pain before long-term gain? A look at French labor reform and economic growth
- Asia: Unremarkable growth & unfulfilled promises?
- How India's latest monsoon is affecting the economy
- Russian economy update in wake of OPEC deal announcement
- Innovation in Latin America: Potential Goes Untapped Due to Weak Economic Conditions
- The Wisdom of the Crowds and the Consensus Forecast
- Can the peso predict the U.S. election results?
- There's no end in sight to the Venezuela crisis
- A Look at the European Union Political Calendar
- Survey of international economists shows uncertainty surrounding elections damaging U.S. growth prospects
- FocusEconomics partners with leading online statistics provider Statista
- China: Recent postive economic data may be papering over the cracks
- Sub-Saharan Africa's 2016 & 2017 growth rates
- The Italian Dilemma: Weak banks pose risk to already faltering domestic demand
- How much money do migrants from Latin America send home?
- The U.S.' (Not So) Mysterious Case of the Missing Men
- What to expect from the G20 economies by 2020
- The Pain in Spain: Robust GDP growth cannot mask the persistent structural deficit