China can ‘say goodbye to more rapid growth in 2017’
Economists warn that a property slowdown, financial fragility and a hostile trade environment are putting 6.5 per cent GDP out of reach
China may be on track to meet its 6.5-7 per cent growth target for this year but even the lower end of that goal may be too ambitious next year, analysts warn.
Steady growth of 6.7 per cent in the first three quarters means this year’s target is within reach but a property slowdown, financial fragility and a hostile trade environment expected from the administration of US president-elect Donald Trump will work against a similar rate next year.
It would be more reasonable to accept a lower growth rate, economists said.
The housing sector, a major driver of this year’s growth, is starting to slow, as authorities strive to contain asset bubbles in top-tier cities and clear housing inventory in smaller cities.
“The decline in the property market is a double blow to both consumption and investment,” Guotai Junan Securities chief economist Lin Caiyi said.
Lin said falling investment in real estate would also hurt demand for cement and steel in the upstream supply chain, and decrease consumption by new buyers furnishing their homes.
At the Central Economic Work Conference this month, where an economic policy blueprint for next year was unveiled, the Communist Party’s leadership pledged to pursue a neutral monetary policy and proactive fiscal policy.
President Xi Jinping was personally fine with a growth rate below 6.5 per cent next year as long as the country could create enough jobs for its people, Bloomberg reported this month, citing one unidentified source.
Some economists say that for the mainland to have at least 6.5 per cent headline growth in 2017, its primary budget deficit, which reached a historic high of 3 per cent of gross domestic product this year, would have to expand, worsening the country’s debt problem.
Annual growth of 6.5 per cent is more of a political aim than an economic goal. The party vowed to double per capita GDP in the decade to 2020 to celebrate the party’s centenary in 2021, so would have to achieve annual average growth of 6.5 per cent through 2020, it said in its 13th five-year plan.
Beijing has limited room to increase tax revenue or land income given the property market is tightly regulated and few firms are interested in investment. Private investment remained at only about 3 per cent, and it was unlikely to rise much more without any breakthrough in structural reform, analysts said.
Continuing to bolster growth by accumulating debt would do more harm than good for the country, Yao Wei, chief economist of French bank Societe Generale, wrote in a note. The danger of that policy “is all too apparent, for it has become not only an impediment to the necessary structural adjustments but also the culprit behind rapidly rising debt risks”, Yao wrote.
Prospects for exports, traditionally a major growth engine, do not look rosy either. The possibility of trade disputes increased after Trump signalled heavy tariffs on Chinese products exported to the United States and appointed hawkish China critic Peter Navarro as his main advisor on trade policy.
“After two years of negative growth, our exports were supposed to recover as other economies’ growth rebounds, but all these uncertainties set out by Trump indicate that there is unlikely to be apparent improvement in the coming year,” said Xu Mingqi, a researcher from the Shanghai Academy of Social Sciences.