China gives itself an ‘A’ on economic report card

Key goals met, including headline gross domestic product growth rate and reductions in steel and coal capacity, central government says

PUBLISHED : Tuesday, 13 December, 2016, 8:03am
UPDATED : Tuesday, 13 December, 2016, 8:03am

The central government has met nearly all of its self-appointed economic “key performance indicators” for 2016, ranging from the headline gross domestic product growth rate to reductions in steel and coal capacity. But congratulations, if any, are muted.

The indicators showed stability and improvement – economic growth stood at 6.7 per cent for the first, second and third quarters, ensuring Beijing will achieve minimum full-year growth of 6.5 per cent.

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Meanwhile, deflation in producer prices that had persisted for more than four years ended in September, while the traditional growth engines of industrial production, investment and exports were back to comfortable levels.

Beijing has declared victory on other tasks. Xu Kunlin, a senior official at the National Development and Reform Commission, told state television that Beijing had reached its targets of phasing out 45 million tonnes of steel production capacity and 250 million tonnes of coal capacity “ahead of schedule”.

Shi Yaobin, a vice-finance minister, claimed the country was on track to reduce the tax burden for businesses by at least 500 billion yuan (HK$560 billion) in 2016 through value-added tax reform.

Investors, however, are pulling money out of China as pressure continues to mount on the yuan to weaken. The benchmark stock market index is still below the level at the start of the year, after investor confidence was shattered by a sharp fall in the summer.

“Stability is a big policy consideration as China will face many risks next year” such as continuous capital outflows following a likely US Federal Reserve rate increase, said Zhao Yang, chief China economist at Nomura.

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The central bank would face a harder balancing act in 2017 as it pursued a slew of different, sometimes conflicting, economic objectives, Zhao said.

“The central bank will face complicated challenges – it needs to stabilise growth, curb property asset bubbles, prevent the yuan from depreciating sharply while keeping a lid on capital outflows,” Zhao said. “Some of these goals conflict with each other.”

It is in this economic context that the leadership, headed by Chinese President Xi Jinping and Premier Li Keqiang will enter the final year of their first five-year term. They are expected to convene top cadres at the annual economic work conference this week to chart out economic policy directions for 2017.

Meanwhile, the statistics agency is scheduled to release industrial production, investment and consumption data for November, which are likely to point to a stabilisation in the economy. However, any recovery could be short-lived.

“China has been maintaining a modest stimulus policy mode, and there’s no real improvement in economic structure,” said ­Steven Zhang, chief economist at Morgan Stanley Huaxin Securities. “China is still relying on real estate investment and infrastructure spending to drive growth.

“Growth will again face downward pressure starting from the second quarter next year,” he said.