China Briefing | Three clues to reading the Chinese economy’s fortune in 2017

With the end of the year just around the corner, crystal ball-gazing season is upon us when it comes to how the Chinese economy will perform in 2017. The outlook is unlikely to be very appealing.

For this year, economists expect the economy to grow at 6.7 per cent, down from 6.9 per cent in 2015, another slowest annual economic growth rate in a quarter of a century.

And the worst is yet to come. Many now expect economic momentum to weaken further in 2017 with the growth rate moderating to about 6.5 per cent, perhaps the lowest level the Chinese authorities could tolerate. President Xi Jinping has said China must keep annual average growth of at least 6.5 per cent over the next five years to hit a goal of doubling gross domestic product and per capita income by 2020 from 2010 levels.

Admittedly, since soon after coming to power in late 2012, Xi has preached that the mainland economy has entered “a new normal” where the growth rate would slow to a single digit in the years to come after decades of double-digit growth. And deeper reforms were needed, he said, to move to a consumption-based economy from the reliance on the traditional engines of debt-fuelled investments and exports.

But adjustments to this new normal have not been easy. If predictions are right, the growth trajectory will be L-shaped over the next few years, meaning that – as consumption will not be strong enough to take up the slack – the government will have to rely on state investments to cushion the slowdown. And next year is crucial for the government to find a floor to ensure economic growth doesn’t fall below 6.5 per cent.