GDP growth seen slowing to 7.3% in 2014
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 email@example.com and firstname.lastname@example.org