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China Economy

Asian Development Bank revises up forecast for China’s economy

Lender takes more optimistic view after ratings agency last week downgraded China’s credit rating for first time since 1999 amid concerns over debt levels

PUBLISHED : Tuesday, 26 September, 2017, 3:00pm
UPDATED : Tuesday, 26 September, 2017, 10:32pm

The Asian Development Bank has revised its forecasts upwards for China’s economy for this year and next, despite concerns raised by other economists and analysts over its high levels of debt.

The development bank said its more optimistic assessment came amid higher demand for Chinese goods and services overseas, plus the government’s expansionary fiscal policy.

The lender predicts China’s economy will grow 6.7 per cent this year, compared with an earlier prediction of 6.5 per cent. Growth next year is tipped at 6.4 per cent, up from a previous estimate of 6.2 per cent.

The forecasts come in the bank’s Asian Development Outlook report published on Tuesday.

It said growth prospects for Asia were also improving on a revival in world trade and “strong momentum” in China.

S&P pours cold water on Beijing’s upbeat economic narrative

The bank’s chief economist Yasuyuki Sawada said in the report: “The PRC economy remains resilient, solidifying its role as an engine of global growth.”

Hong Kong’s growth forecast was increased to 3.6 per cent this year from two per cent tipped in April on the back of strong domestic consumption and favourable global trade, Sawada said. The city’s growth forecast for 2018 was raised to 3.2 per cent from 2.1 per cent.

China’s economy grew at its slowest rate in over 25 years in 2016 and the ratings agency S&P also added to concerns about its massive debt levels last week by cutting the country’s credit rating for the first time since 1999.

Sawada, however, said on Tuesday the levels of debt were “not necessarily a worrisome situation”.

Beijing had shown it has made financial and fiscal stability a priority, including by setting up a commission under the State Council earlier this year to regulate the country’s financial sector, he said.

“The government has been quite clear in setting priorities to tackle this potential debt problem,” he added.

China’s household debt rose to over 45 per cent of GDP earlier this year and its total debt levels exceeded 304 per cent of GDP as of May, according to the Institute of International Finance.

Sawada said forecasts for Chinese growth did not take in “highly hypothetical” geopolitical factors such as an escalation of tensions on the Korean peninsula amid Pyongyang’s nuclear weapons tests.

He also dismissed concerns about potential US trade sanctions on Chinese goods, citing buoyant demand from markets in Europe and Japan and expectations that global expansionary trade would continue.

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Sawada said the forthcoming Communist Party Congress in Beijing next month, which will see changes in the leadership and Xi Jinping start a second term in office, was unlikely to have much impact on the country’s economic performance.

“I think that growth will continue regardless of some external changes and we don’t see any big ... uncertainties arising in the next year or after,” he said. “China’s growth momentum will continue.”