GDP growth seen slow­ing to 7.3% in 2014

China Daily (Hong Kong) - - BUSINESS - By LI JI­ABAO in Bei­jing EMMA DAI in HK


China’s eco­nomic growth is likely to slow to 7.3 per­cent in 2014 amid the lead­er­ship’s on­go­ing moves to re­struc­ture the world’s sec­ond- largest econ­omy, ex­perts said on Tues­day. “The Chi­nese econ­omy has sta­bi­lized and we have edged up our GDP growth es­ti­mate to 7.7 per­cent this year. We fore­cast a slow­down to 7.3 per­cent in 2014, fol­lowed by a fur­ther slow­down to 5.9 per­cent in 2018,” said Xu Si­tao, chief rep­re­sen­ta­tive of The Econ­o­mist Group in China, cit­ing a re­port from the group.

He added that the GDP growth es­ti­mate for next year was de­creased due to down­ward pres­sure in the Chi­nese econ­omy and the gov­ern­ment’s moves to re­struc­ture the coun­try’s eco­nomic growth model.

Shen Ming­gao, head of China re­search at Citibank, also es­ti­mated the na­tion’s GDP growth at 7.3 per­cent in 2014 as ma­jor driv­ers of the econ­omy, namely Sta­te­owned en­ter­prise cap­i­tal ex­pen­di­ture, in­vest­ment by lo­cal gov­ern­ments and the prop­erty sec­tor, are ex­pected to lose steam due to the struc­tural re­forms.

Shen added the struc­tural re­forms will have a neg­a­tive in­flu­ence on eco­nomic growth in the short term.

“How­ever, the real rate de­pends on a lot of other el­e­ments. If the ur­ban­iza­tion drive un­folds faster than ex­pected and if the cen­tral gov­ern­ment rolls out more de­tailed poli­cies, the growth pic­ture should be more op­ti­mistic,” Shen said.

Econ­o­mists are also de­bat­ing whether the gov­ern­ment will set next year’s eco­nomic growth tar­get at 7 per­cent or 7.5 per­cent. The tar­get for this year was set at 7.5 per­cent, and the coun­try’s GDP rose 7.7 per­cent in the first nine months of the year af­ter the Chi­nese econ­omy re­versed a slow­down in the July-Septem­ber pe­riod.

The Cen­tral Eco­nomic Work Con­fer­ence, China’s high­est-level eco­nomic con­fer­ence held from Dec 10 to 13, did not dis­close an eco­nomic growth tar­get for the com­ing year. A re­port from Xin­hua News Agency said that the gov­ern­ment will en­deavor to im­prove the qual­ity and ef­fi­ciency of eco­nomic growth while avoid­ing side­ef­fects.

“The con­fer­ence clearly pointed out the im­por­tance of eco­nomic re­struc­tur­ing and po­ten­tial risks, in­clud­ing over­ca­pac­ity and lo­cal gov­ern­ment debt, rather than pri­or­i­tiz­ing the GDP growth tar­get, which is big progress from the past years,” Xu said.

“Over­ca­pac­ity will not be re­solved in one or two years. The econ­omy needs to main­tain a rea­son­able growth pace, in­clud­ing guard­ing against a big slide in real es­tate growth as it ac­counts for one-fifth of the GDP. Ad­di­tion­ally, the gov­ern­ment should avoid pol­icy mis­takes, such as the huge stim­u­lus pack­age af­ter the 2008 fi­nan­cial cri­sis. Stim­u­lus, if nec­es­sary, should go to the liveli­hood ar­eas. Re­forms in fi­nan­cial sec­tors should speed up,” he added.

To tackle the lo­cal gov­ern­ment debt is­sue, Xu pro­posed that the cen­tral gov­ern­ment launch a “small-scale bank­ruptcy process” for lo­cal gov­ern­ments, sim­i­lar to the one used for the Detroit bank­ruptcy in the United States. Such a mech­a­nism would boost fi­nan­cial re­forms and pri­vate in­vest­ment.

“The pos­si­bil­ity of lo­cal gov­ern­ments go­ing bank­rupt is slim next year, but the lo­cal gov­ern­ment debt prob­lem should be ul­ti­mately re­solved through mar­ket forces.”

He noted that the gov­ern­ment’s hous­ing poli­cies showed that it will fo­cus on pro­vid­ing af­ford­able hous­ing for low- in­come groups, while prop­erty con­trols will be de­ter­mined by sup­ply and de­mand. That is a much bet­ter pol­icy than the ad­min­is­tra­tive con­trols in­tro­duced years ago, as it is ef­fi­cient and fair, he added.

The ex­ter­nal en­vi­ron­ment will be fa­vor­able for China in 2014, Xu said. The global econ­omy is likely to grow 3.5 or 3.6 per­cent, the best per­for­mance since 2011.

“De­vel­oped economies will out­per­form de­vel­op­ing ones in the com­ing years. The eu­ro­zone has emerged from re­ces­sion. The US will be a high­light next year and may grow 2.6 per­cent com­pared with the 1.7 per­cent seen this year,” Xu said. “But the US mone­tary stim­u­lus im­proved its stock and prop­erty mar­kets as well as em­ploy­ment rather than the in­come of the mid­dle class, thus bring­ing lim­ited de­mand for Chi­nese ex­ports.”

He noted the scal­ing-down process of the US quan­ti­ta­tive eas­ing pro­gram, likely to hap­pen in early 2014, will chal­lenge emerg­ing economies.

“China’s con­sump­tion will be pos­i­tive in 2014 and the eco­nomic growth slow­down will be re­flected on re­duced in­vest­ment growth. The gov­ern­ment should nar­row the trade sur­plus,” Xu said, adding that some of this year’s trade fig­ures were in­flated by for­eign ex­change spec­u­la­tion dis­guised as trade ac­tiv­i­ties. Con­tact the writ­ers at li­ji­abao@chi­ and em­madai@chi­nadai­

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