Strong GDP tipped to be a shot in the arm for Xi but debt fears linger
Third-quarter economic growth figures are expected to be a boost for the president but analysts say there’s still plenty to worry about
China is expected to release a “stronger-than-forecast” GDP growth figure for the third quarter on Thursday, the second day of the Communist Party’s national congress, bolstering President Xi Jinping’s economic management credentials.
Strong growth this year would build on the 7.2 per cent average growth of the past four years, helping China to reach its target of doubling per capita GDP from 2010 by 2020 and giving Xi greater leeway to tackle structural problems in his next term.
While the numbers have not been officially released, central bank governor Zhou Xiaochuan has already said that growth in the second half will be about 7 per cent, instead of the 6.5 per cent targeted at the start of this year.
Along with the third-quarter gross domestic product numbers, the National Bureau of Statistics will also release monthly indicators for industrial output, retail sales and fixed-asset investment on Thursday.
Fears that China is headed for an economic hard landing or a full-blown financial crisis gained traction last year but have waned in 2017 since Beijing started taking a stronger role in economic affairs. In response, the International Monetary Fund has revised up its outlook for China four times so far this year.
However, there are still concerns that China has not cut its addiction to credit-driven growth.
Analysts at S&P Global Ratings, which downgraded China’s sovereign rating last month, said in a note released on Tuesday that China had taken only “baby steps” towards deleveraging, one of Xi’s policy priorities.
“Deleveraging is a tricky business,” S&P analyst Christopher Lee said. “The trick for policymakers is to figure out a way to reduce the country’s dependence on debt, without causing a hard landing or financial crisis.”
In the lead-up to Wednesday’s start to the congress, party propaganda official Tuo Zhen said growth and deleveraging were not conflicting policy objectives.
Tuo said China’s efforts to roll back debt over the last year did not appear to have dampened growth in a major way.
Since Xi took top office, the centre of China’s economic decision-making has gradually shifted from the State Council led by Premier Li Keqiang to the president.
Xi was ultimately responsible for setting the goal to make China a prosperous society by 2020, for defusing China’s debt bomb with supply-side structural reform, and for securing the country’s economic and financial security, especially after the 2015 stock market rout.
In the last two years, volatility in China’s quarterly economic growth rate has also narrowed to within 6.7 per cent and 6.9 per cent.
“It now lies at an appropriate range where no additional efforts are needed,” Bank of Communications macro analyst Liu Xuezhi said.
Liu said Beijing now had the room to work on “more measures to facilitate the changeover of growth drivers and a long-term effectiveness mechanism for the property market”.
Earlier data, including trade figures and the purchasing manager’s index, which hit a five-year high at 52.4 in September, presented a rosy picture of the economy, pointing to a pickup in midstream manufacturing activity and stable domestic demand.
But Ding Shuang, chief China economist at Standard Chartered Bank in Hong Kong, said there were concerns that the strong import figures and producer price growth were largely driven by government-ordered capacity cuts and an environmental protection campaign.
“The Chinese economy is on the track of a slowdown, although the process will be slow and mild,” Ding said.