Strong growth is reason to cheer – but not too loudly
China’s economy grew by a robust 6.9 per cent last year but with headwinds forecast for 2018, the nation must continue policy of deleveraging to keep financial risks in check
It was all cheers when China announced its economy grew by 6.9 per cent last year, exceeding Beijing’s original full-year forecast of 6.5 per cent. The strong growth was achieved despite a concerted effort to curb financial risk from excessive debt. Rightly, deleveraging, and the focus on growth quality over quantity, remain the official priorities.
If nothing else, President Xi Jinping has learned from past lessons that high growth at any cost was counterproductive, if not detrimental to the overall economy. There is no question the growth was real, despite admission by several provincial and major city governments that data had been falsified. Carbon emissions are up; foreign companies have reported robust growth; commodity imports are on the rise; power consumption is up. Such numbers are hard to fake.
But if this year faces greater challenges, the question remains whether mainland economic policymakers have the stamina to stay the course on deleveraging. At the official press conference and on the sidelines, senior officials were keen to emphasise risk reduction as the top priority and that GDP growth was no longer of paramount concern, as it was in the past.
Strong growth means Xi will have greater room and leeway to press on with structural reforms, so credit easing is not on the cards. For the first time since 2011, the country’s ratio of debt to GDP is falling.
But some prominent analysts predict a tougher year ahead. Last year’s growth depended greatly on strong exports and property. Balancing between growth and deleveraging will get tougher with a slowing property market and curbs on regional infrastructure spending.
Beijing is also well aware that the strong growth is riding on the back of the global recovery. But trade relations with the United States are deteriorating as Washington prepares to take a tougher stance. Some pundits in both countries are even warning of a looming trade war.
A storm is brewing. Still, the stock and real estate markets are rising, and economic data across the board from key economies around the world are looking up. From policymakers to retail investors, it’s a moment to savour – for now.