Beijing must balance growth and reform
Challenges remain for Beijing, but it is essential the government succeeds for the benefit of the world economy
China’s latest growth figures have beaten consensus estimates and prompted the International Monetary Fund to revise its forecasts upwards. That’s good news in a world haunted by economic and trade uncertainties from American protectionism under President Donald Trump and the UK’s destabilising Brexit. A stable and balanced recovery in China is essential to world growth.
The mainland economy officially grew at an annual rate of 6.9 per cent in the last quarter, matching its growth in the first quarter. That beats a consensus forecast of 6.8 per cent, and is ahead of Beijing’s target of growing gross domestic product by 6.5 per cent this year. Factory output expanded by 7.6 per cent from a year ago and fixed-asset investment grew by 8.6 per cent in the first six months of this year. Retail sales rose by 11.0 per cent in June from a year earlier.
All these should help allay fears – at least for now – that the economy might be heading for a hard landing. There is cause for optimism as better-than-expected growth not only in China, but in the euro zone and Japan, is making up for a slower growth in the US and a faltering British economy. It’s not often you hear such a positive statement from the chief IMF economist. “There is now no question mark over the world economy’s gain in momentum,” Maurice Obstfeld said.
We now live in a very different world. The sources of global growth have moved away from the US with 60 per cent of the world GDP – and 80 per cent of growth – now coming from developing economies, with China taking the lead. But all is not plain sailing.
The IMF now forecasts China to expand 6.7 per cent this year, based on the second-quarter growth numbers. But it expects the economy to slow to 6.4 per cent growth next year. In this, the IMF is in sync with China’s policymakers. Systemic risks remain for China domestically and overseas. A mild slowdown in the second half of this year is still possible as the cooling of the property market takes effect. Continuing structural reform means there must be further reductions in excess capacity and inventory, and in corporate debt.
So-called zombie enterprises – loss-making state-owned companies burdened with heavy debt, mismanagement and overcapacity – need to be dealt with. The local government debt problem and volatilities in financial markets pose further dangers.
Overseas, major developing economies such as Brazil and Russia face serious economic challenges while the US and Britain are causing concerns because both governments seem to be failing to get a handle on their economies. China’s policymakers still have to walk a tightrope between economic growth and structural reform. The world has every interest in seeing that they succeed.