China economy

Striking an economic rebalance

As mainland growth limped across the line at the end of 2012, the jury was out on what lay in store for the world's second-biggest economy in the year ahead. Beijing correspondent Jane Cai quizzed three top analysts on their forecasts for core indicators over the next 12 months

PUBLISHED : Saturday, 05 January, 2013, 12:00am
UPDATED : Tuesday, 23 January, 2018, 11:43am

Ha Jiming, vice-chairman and chief investment strategist, Goldman Sachs' investment management division, China

GDP growth: 7.5-8.5 per cent
CPI: 3-4 per cent

The recovering momentum of the mainland economy is likely to hold out, helping GDP to grow by 7.5 per cent to 8.5 per cent in 2013. The odds are high that the growth rate will exceed 7.5 per cent, with quickened investments likely after the government reshuffle.

Investment expansion could hardly be slow, judging from planned infrastructure construction investments. And Premier Wen Jiabao said in July - after GDP growth dipped to 7.6 per cent in the second quarter - that China would rely mainly on investments to lift its flagging economy. Since then, China has quickened approvals for various construction projects from steel plants to railways.

External demand will also improve this year, thanks to sound growth in emerging markets, a likely steady recovery of the US economy, and the stabilisation of European economies.

However, economic growth of higher than 8.5 per cent is unlikely because policy is focused on the quality rather than the pace of growth, as well as economic restructuring. In its endeavours to rebalance the economy the government has vowed to increase incomes and double per capita GDP by 2020.

Driven by rising incomes and expectations of further increases, household consumption this year will grow steadily or even slightly faster than this year. Purchases of household appliances and furnishings will rise in line with a rebound in property transactions.

Given the recovery in economic activity, inflation is expected to edge up, with prices rising by 2.5 per cent to 3.5 per cent. However, inflationary pressure will be subdued thanks to a strong grain harvest and relatively low raw material prices.

The government will likely target a 3 per cent to 4 per cent inflation rate this year and GDP growth of 7.5 per cent. Fiscal deficits will probably increase to support tax cuts and spending to improve people's livelihoods; and money supply is likely to grow by 12 per cent to 14 per cent.


Grace Ng, senior China economist, JPMorgan Chase Bank

GDP growth: 8 per cent
CPI: 3.2 per cent

The mainland economy will grow by 8 per cent  this year, driven by solid investment and consumption that will more than offset a  decline in net exports. Investment and consumption will each contribute 4.2 percentage points to growth, while net exports are likely to pull the rate down by 0.4 percentage points.

Fixed-asset investment will probably gain speed to grow by 21.5 per cent, compared with last  year’s estimated 21 per cent. Under moderately easing fiscal policy, spending in infrastructure construction is set to quicken.

The 2012 economy was managed along “positive fiscal” and “prudent monetary” policy lines, and  last month the central leadership said it would maintain economic stability and policy continuity.

Growth in planned investments in new projects rose to 48.6 per cent in November from 35.2 per cent in October, suggesting growth in investments could stay steady in the coming months.

Growth of fixed-asset investment in the real estate sector is expected to  be modestly slower,  with help from a pick-up in private sector investment, though affordable housing investment growth will likely ease from last year’s robust pace, and that of manufacturing fixed-asset investment is likely to be on par with 2012.

Consumption will improve slightly,  with retail sales likely to grow by 14.8 per cent. Household consumption has held up despite the economic slowdown last year. Steady wage growth will support a rise in consumption.

Reforms, including urbanisation and resource pricing changes,  will begin to  have a gradual impact, with consumption’s share of GDP expected to rise by 1 per cent annually in the next five to 10 years as fixed-asset investment’s share in the economy decreases.

Exports will continue to be a negative factor, but with the stabilisation of the global economy, the second half will show better momentum than the first.

Consumer inflation will climb  to 3.2 per cent resulting in a mildly inflationary and moderate economic recovery this year. 


Michael Pettis, finance professor, Peking University’s Guanghua School of Management

GDP growth: unpredictable
Inflation: unpredictable

GDP growth is expected to be close to 8 per cent for the first half of  this year, but is difficult to forecast for the second half when overall growth could slow significantly. That’s because it’s a political rather than economic issue and conditional on how urgently the leadership tackles the task of rebalancing and whether it is able to consolidate its power quickly.

China is rebalancing its economy from a heavy reliance on investment-fuelled expansion to focus more on consumption. Growth in the second half will likely drop to 7 per cent or lower if there is consensus on the urgency for rebalancing.

In the absence of a clear consensus on rebalancing and if investment levels are not cut,  GDP growth could be in the 7.5 per cent to 8 per cent range for 2013.

Official data show that the contribution of investments to GDP climbed from 40 per cent in 2000 to close to half in 2011, while the share of consumption dropped from 45 per cent to 40 per cent.  A major constraint on the continued rise in investment-driven development is debt.

China’s debt levels are growing very quickly and if they are not brought down at some point the government will not be able to continue doing what it would like to do. Liabilities of local governments and their affiliated financing vehicles swelled from 2.8 trillion yuan (HK$3.45 trillion) in 2009 to 10.7 trillion yuan at the end of 2010, after massive borrowing to fund infrastructure construction projects to address the 2008-09 global financial crisis.

If these investment levels are not brought down quickly consumption will lag and the imbalance will worsen. But constraints on consumption, including slow wage growth and an undervalued Chinese currency, have started to reverse in recent years and if this continues household consumption will grow.

A side effect of this rebalancing will be a rise in inflation.

Firmer predictions are difficult because of the transition through which the economy is going.