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China economy

China’s growth seen edging up this year despite high corporate debt, US trade war talk: parley

Speakers at the Forecast of China’s Economy for 2018 conference put China’s 2018 GDP growth at 6.8 per cent to 7 per cent, up slightly from last year

PUBLISHED : Wednesday, 10 January, 2018, 5:53am
UPDATED : Wednesday, 10 January, 2018, 6:29am

China is likely to grow at a slightly faster pace in 2018, despite headwinds from domestic issues such as a high corporate debt load and the risk of a trade war with the US.

At the annual Forecast of China’s Economy for 2018 conference in New York on Tuesday, a diverse group of speakers ranging from bankers to scholars to academics, generally pegged China’s 2018 GDP growth at 6.8 per cent to 7 per cent, a small uptick compared with its 6.8 per cent rise in 2017.

China International Capital Corporation, China’s leading investment bank, made the most bullish prediction at 7 per cent.

“And I think that number is very conservative,” CICC chief economist Liang Hong said at the event at the New York Stock Exchange.

“The most exciting thing is the rise of the Chinese consumers,” said Liang, elaborating on her bold outlook. “Last year, retail rose 10 per cent. As the consumer demand continues to grow, China is increasingly becoming not only a producer but also a consumer.”

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Business investments, another important driver of GDP growth, also are expected to grow. Businesses are expected to invest more as the valuation of Chinese companies listed on the Hong Kong stock markets comes up, the panellists said.

If the interest shown in Chinese equity and bonds over the past year carries over into 2018, it also could boost investments, the panellists said.

Such an interest “is expected to be sustainable because allocation of capital is still disproportionately low compared to the size of the economy the country now takes up,” Liang said.

Nicholas Lardy, senior fellow at Washington-based Peterson Institute for International Economics, agreed that China’s growth rate this year will be “slightly better”.

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He cautioned, however, that midterm growth does not look optimistic unless China deals with a number of issues.

That includes, first and foremost, “misallocation of capital being the biggest reason that prevents the economy from operating at the peak level,” Lardy said.

Systemic financial risk is also one of the top challenges China faces. While the debt level in the private sector has been decreasing, the amount of debt at state-owned enterprises has continued to rise.

“Shadow banking continues to be one of the biggest issues the government is trying to regulate,” Huang Haizhou, managing director and management committee member at the CICC, said at the event.

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Most of the panellists agreed that exports in China will benefit from the continuous recovery in the global economy. Some, however, pointed out that it is risky to venture forth with economic forecasts without accepting that a breakout of a trade war with the US is realistic.

Meanwhile, Daniel Rosen, a Rhodium Group founding partner and China practice leader, took a contrarian view, questioning whether 2018 will see growth as robust as that of 2017.

Rosen said he “find(s) it difficult to see a greater investment outlet given the deleveraging effort Beijing has set out.”

Also, “my concern is that we are underestimating the trading war potential,” Rosen said. “A trade war can easily prove to be negative for China or prove to be a windfall,” depending how things evolve.

“I am surprised that a trade war hasn’t happened yet,” said another panellist, Huang Yiping, professor and deputy dean of the National School of Development at Peking University. “I thought Trump presidency means an immediate trade war. But it hasn’t happened.”

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The economic landscape has become “complicated”, he said. “Maybe that was because Trump is a deal maker or that was because trade wars are not determined by economic conditions.”

For now, the lack of a trade war means optimists can still focus on the upside.

“After all, Trump has not staged a trade war yet,” said CICC’s Liang.